200 Years of U.S.-Mexico Relations:Challenges for the 21st Century

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12:00 to 12:30 PM Buffet Lunch

12:30 to 1:45 PM SESSION ONE:U.S.-Mexico Relations TodayCarlos Pascual, Ambassador of the United States to MexicoArturo Sarukhan, Ambassador of Mexico to the United StatesPresider: Ray Suarez, Senior Correspondent, PBS NewsHour

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RAY SUAREZ: Welcome to what promises to be a series of challenging, informative and provocative conversations on "200 Years of U.S.-Mexico Relations: Challenges for the 21st Century."

I'm Ray Suarez. I'm senior correspondent for the "NewsHour" on PBS -- which I trust you see from time to time. If you don't, you owe it to yourself. (Laughs, laughter.)

We begin with a conversation on "U.S.-Mexico Relations Today." And on behalf of the council, I'd like to thank the consul general of Mexico in New York, the Mexican Cultural Institute of New York, as well as the council's Civil Society, Markets and Democracy Initiative, for their support of this symposium.

I'd like to note that the event is being held on the occasion of the bicentennial of Mexican independence and, in the same year, the centennial of the Mexican Revolution.

Please -- I'll ask nicely -- do not set your various communications devices to "quiet" mode or "vibrate" or any -- they really have to be really off, or else one of the ugliest noises known to man comes over the wireless microphone system. And we won't know who you are, but you will. So please, turn off your BlackBerrys, your pagers, your telephones, your -- whatever you got.

I'd like to remind all involved that this session is on the record. And let me begin by pointing out that this is, I'm sure, by common consent, one of the most important bilateral relationships on planet Earth for both countries. When you share a 1,400-mile land border, millions of citizens, tremendously promising, and significant today, trade relations, you're bound to have to talk to each other seriously, both as peers and, one hopes, as friends. How far from God Mexico is, is really up to Mexicans, but they have no choice at this point about being close to the United States; which is going to be the state of play, one assumes, in perpetuity.

So let me welcome our guests: Mexico's ambassador to the United States, Arturo Sarukhan; and our own ambassador, the U.S. ambassador to Mexico, Carlos Pascual.

And gentlemen, there's so much to talk about, in the security realm, in the trade realm, immigration, cultural exchanges, it's -- you know, we could sit here and talk all day; we won't. But let me get your --

MR. : (Inaudible.)

SUAREZ: (Laughs.) Let me get your view, if I needed a thumbnail description from a diplomat, of today's state of play, November 2010, this relationship between our countries. Ambassador?

AMBASSADOR ARTURO SARUKHAN: Well, I think I'd probably, given that you started with the old -- whether it was -- whether it's attributed to Porfirio Diaz, also of (General Ortega ?) -- these are historians that challenged who was responsible for that saying of "Poor Mexico, so close to the United States, so far away from God." I'd remind the audience that a good Israeli -- a good friend of mine, an Israeli ambassador in Mexico, when he had just arrived as ambassador, picked up the phone -- and as both Carlos and I do when we arrive in a new place; we seek to touch base with individuals in the government. And the Israeli ambassador called me and said: Can we have a chat? And I said: Delighted.

We started talking about Mexico's policy towards the Middle East, but we very quickly segued into the U.S.-Mexico bilateral relationship.

And he said: Look. Ever since I arrived here, I'm always surprised by -- when I hear this, of poor Mexico so close to the United States and so far away from God, because actually it should be the other way around. For Israel, it should be poor Israel, so close to God and so far away from the United States. (Laughter.)

And I start with this because I think that the thumbnail description of this relationship is a huge opportunity to fulfill the strategic parameters that this relationship provides to both countries. And the border is certainly a 3,000-kilometer region which does provide for huge challenges, some of them -- some of them that we are facing together as we speak, but it certainly also opens up huge opportunities for both countries to change fundamentally the nature of the game between both countries. I don't think that we have seen the commitment on both sides of the Rio Grande, both in Washington, D.C., and Mexico City, that we have seen today in terms of ensuring that this relationship regains a strategic footing since the days of NAFTA.

SUAREZ: Ambassador, and if you could, perhaps reflect on the same question in light of last Tuesday's elections.

AMBASSADOR CARLOS PASCUAL: I think, regardless of what the electoral outcome might have been, but including taking into account the change of position in the House, one of the things that I think the United States has to recognize is how important Mexico is to us.

I think sometimes there's a perception in the United States that the United States is doing for Mexico, that we're helping them with their security, that we're helping them get their problems under control.

We forget that Mexico is our number-two trading partner in the world. We forget that we export to Mexico more than we do to China, more than to the newly industrialized countries of Asia combined, second only to Canada.

As I've worked over the past year and a bit in Mexico and have met with every single major company, whether it's Ford or GM or Chrysler or Caterpillar or General Electric or Intel or Cisco, what I have been phenomenally impressed with is the extent to which the integration that they have had on design and production -- not just production, but also design -- has lowered their cost structures and increased their competitiveness and has increased their capacity to export and to produce for the U.S. market products that would not have been competitive globally otherwise.

And so part of the reality of Mexico today is that we are working together in this global market, and in that global marketplace, we are helping one another. And one of the things, I think, for a new Congress to develop an appreciation for -- because too many of the stereotypes are either the issues related to security or the issues related to immigration, with a perspective that Mexico can be a problem -- I think one of the first lessons is that Mexico is a partner, and that partnership has actually made both of us better off, and we need to appreciate that and strengthen that aspect of the relationship.

There are obviously security issues that are pressing to both countries. And in those security issues, I think we have to keep a very clear perspective that there are zones of extreme violence. And Ciudad Juarez, for example, with a homicide rate of 191 per 100,000 per year, is the most violent place in the Western Hemisphere. But as a country, Mexico has a homicide rate of 14 per 100,000, which is less than Brazil's of 25 per 100,000, which I think would probably surprise most of you in the audience.

And on immigration issues, these are difficult questions for both sides. And we need to find a way to be able to work through them, talk about them and develop an understanding of the human perspective behind immigration, because otherwise it can become an issue which very quickly becomes very volatile and very political without understanding the benefits that both countries can have to having some form of a normalized immigration system.

Those are, I think, the key issues I would put on the table to start.

SUAREZ: Ambassador Sarukhan, you see American media. You follow it. You see what Americans -- rank-and-file Americans are given from which to create an impression of the state of life in Mexico. Is that a portrait from which you can build a reasonable understanding of day-to-day life in your country? Is there too much concentration on the Juarezes and not enough on the places in the country that have been either less touched or hardly touched at all by what's going on?

SARUKHAN: Well, I addressed this issue just a few days ago in Washington, D.C. And I want to be very clear about this. As someone from my generation in Mexico that saw a very different Mexico from the one that we live in today where the challenges that the press faced were not from organized crime but from a government that was trying to shut them down and to, for example, control what they printed, in terms of their access to print, to be able to produce the papers, to the situation that we have today where we have an empathic free press. There's a huge seismic shift.

But one of the challenges that I think that we face, especially when it comes to international media, is that unfortunately you do see the dynamic of "it it bleeds, it leads." There is a narrative which is dominated by those Ciudad Juarezes of Mexico. And where sometimes it is a big challenge to provide either a contextualized understanding of Mexico or a broader vision of what else is going on in the country and a nuanced understanding that despite the challenges -- and I'm not going to sugarcoat the issue of violence and I'm not going to put it under the carpet -- there is a huge challenge that Mexico faces today in terms of violence being unleashed by drugs and -- (inaudible) -- organized crime in general.

But to infer from that that there is a brush fire from the Rio Grande to the Guatemalan border and it affects everyone indiscriminately is off the -- is off the mark. And I think that we have seen some important efforts by some media outlets in the United States to provide a broader picture, but this continues to be a challenge.

SUAREZ: Well, these things that we hear about on this side of the border seem to be one-upping each other week by week in their lurid, crazy violence, their Gothic nature -- the mass killings, the sort of bizarrely creative ways to make people suffer. That has to have some impression on this side of the border. Is it making -- how is it making your job, explaining Mexico to Americans, different?

SARUKHAN: Well, it's certainly not easy, again, because some of these images and some of these stories, for obvious reasons, because they're heinous enough and they're tragic enough to be a story in and of itself, do dominate perceptions of Americans of all walks of life as they look towards Mexico. But I think the challenge as an ambassador, as our consular network through the United States, in our interactions with everyone from civil society to the private sector to media, is to provide a nuanced, balanced understanding of what is going on in Mexico.

And there are some stories which are critically important for Mexico's future development. For example, I think you and I have talked about this in your show. There's a fundamentally important success story taking place in Mexico today which may not be as sexy as some of the stories that you see in the media but which is fundamentally transforming the face of Mexico, which is the expansion of the middle classes.

And this expansion that is happening in the middle classes in Mexico is a direct result, A, of Mexico's mooring into the international economy via NAFTA, the success story of NAFTA, which we have to continue to underscore; and, B, a sustained macroeconomic -- responsible macroeconomic policies over the last decade, at least since the 1994 economic crisis -- which was the last one of our making; this one was yours -- but certainly 1994, which was the last time that Mexico mishandled -- badly mishandled its finances. Since then, sustained macroeconomic policies, the fact that Mexico moored itself to the international economy, that exports grew this expansion of the middle classes, is profoundly changing the face of Mexico.

And it is -- you could probably say, well, and why is this relevant in the fight against drugs? Well, because, if we are going to be able to defang and detour and push back transnational organized crime, civil society is going to have to play a key role in a co-stakeholdership model with the government. If we can't convince civil society in Mexico that this fight isn't just against drugs and drug traffickers, but it's seeking to enhance and ensure the rule of the law and the empire of liberty, and that is the most important challenge for Mexico's democratic future, we won't be able to take on organized crime.

So this is why this facet that plays critically into the hands of how we understand the next steps and the next phases in Mexico's struggle to ensure the rule of law, this is why the story's so important. You've barely seen stories on these types of issues in the press.

SUAREZ: Was the sigh of relief louder in his embassy or your embassy when California voted not to legalize marijuana? (Laughter.)

PASCUAL: (Chuckles.) Who knows? (Laughter.) It -- I --

SUAREZ: But it would have complicated matters, wouldn't it?

PASCUAL: Sure. It obviously would have complicated matters. And it probably would have complicated -- in terms of my day-to-day life, maybe it might have complicated it more, because I would have been on the front lines of trying to explain it in the Mexican public and to Mexican officials, and the headlines the following day would have been, "America acknowledges co-responsibility, legalizes marijuana." It would not have been a simple public-relations issue to work through.

But I want to go back to the security issue for a minute, if we could, because I think that one of the issues is that we're constantly trying to understand what the nature of security problems are and how they've evolved. And I think it's important to understand them in order to come up with solutions that make sense. And one of the things that -- I think a slight trek back in history is useful for a second. In the 18 -- 1980s and the 1990s, the Colombian cartels dominated the drug trade in the Western Hemisphere. In the 1990s, the U.S. cut off the maritime lanes and essentially pushed the drug trade on land. And what you eventually got in Mexico by the end of the 1990s were essentially about four major cartels that controlled the movement of drugs on land.

In '97, stepping aside for a second, Colombia legalizes extradition to the United States and starts to utilize it. A couple of years later it begins Plan Colombia. Uribe is elected in 2002; much more intensive implementation of Plan Colombia, much more aggressive use of extraditions. And suddenly Colombian kingpins who used to be able to even run their organizations from prisons are finding themselves in jail in the United States and starting to cooperate.

What happens? The Mexican cartels move to Colombia and become the kingpins of the trade in the Western Hemisphere. And this part, we're still working on documenting what the amounts are, but the value of this market for the Mexican cartels goes from here to here. Well, I mean, those of you from this town, what happens when that -- when that occurs in a -- in a market in a legal economy? You get new entrants, you get mergers and acquisitions, and you get hostile takeovers.

What begins to happen in Mexico in 2002, 2003 is a radical increase in the levels of violence that begin as you get breakups and splits among the cartels. The challenges between the Tijuana cartel and the Sinaloa cartel; the challenges between Sinaloa and the Gulf cartel when Osiel Cardenas, the head of it, is arrested in 2003; the split of Arturo Beltran Leyva from the Sinaloa cartel and how that influences violence in Ciudad Juarez. And one can go through and name these splits over the period of time and essentially track what the escalation or the movement of violence has been.

If one goes through that story, the -- there are a couple of lessons to be taken out of that. The violence that Mexico is facing today is largely explained by the nature of the changes that happened in the drug market in the Western Hemisphere. And I think President Calderon at times is wrongly blamed for initiating a cycle of violence that took place as a result of standing up to these cartels. I would propose that if President Calderon had not stood up to the cartels, that this violence would have, in fact, largely occurred anyway, and that historically he will eventually get credit for taking the decision of eventually standing up to the cartels.

I think the second thing that comes out of this is for those who have argued, you know, can't we go back to the way it was, you know, before? It's like saying can't we go back to the 1990s market, right? It's a different world; it's a -- it's a different set of factors. And you can't go to that. And the idea that there can be some accommodation in the context of what were, in the past, transit cartels in Mexico is just unrealistic. It can't happen.

But then I think what it reinforces is, you know, what lessons do you take from that for the future? Well, one is what Arturo just said, is the importance of reinforcing the rule of law, because part of the reason that these cartels continued to be violent with one another is that Mexico did not have the inheritance of a civil justice system, because it essentially had one political party that dominated issues from the top to the bottom, and issues were decided by politics. And so the civil justice system at a state and municipal level didn't exist. And so creating that capacity now, with the federal police, the hugely important debate that's going on, on how to strengthen state and municipal police, how to work with the judiciary, is key.

And then there's the even tougher issue of what do you in the short term, because all of those other things take time to build up. And this then becomes a very critical part of the relationship between the two countries and what we do together, for example, on working on intelligence sharing, so that you can move from a strategy of patrolling the streets to in fact identifying where you have safe houses and bases and weapons stashes and vehicles, so you can destroy capacity; or the importance of better understanding the movement of money and how it gets invested, so that you can then block off more of the funds that are being laundered; or, in the United States, better mechanisms to build cases on arms trafficking, so that we can prosecute them in the United States.

And so I think that when we look at these issues of violence and the escalation of violence, we've got to appreciate that part of this was occurring anyway. Some of it may have become more acute in the last two years as President Calderon and the government has taken actions and as our cooperation in the Merida Initiative have become sharper. And it's not surprising to see the cartels react, but the interesting thing is that what I think they are pushing for is -- they're the ones who are pushing for a return to the past. They're the ones who are pushing for a return to that period of impunity when there was no consequence to their -- to the violence.

And so I think it forces us to continue to challenge ourselves, is -- how do we work on these issues in a way that can have an impact and in the end take us from us from violence to creating a prospect of really having a more secure environment with the rule of law. But we kid ourselves if we think that it was the confrontation with violence that brought on the violence. This was something that is rooted in something deeper.

SUAREZ: The way Ambassador Pascual gives our chronology sounds very logical, very defensible, but there's a sizable portion of the Mexican public that's not so sure that militarizing the conflict was the right move on the part of the president, and he's suffered in his support for that policy as there's been an escalation in this confrontation.

Seeing the army on the streets of Mexican cities is hard for a lot of Mexicans, isn't it?

SARUKHAN: Ray, if you look at the polls today in Mexico, support for the president's decision to deploy the armed forces is pretty high, and it -- and it's -- and it has maintained more or less at the same level when -- than -- when the president decided to use the armed forces as a stopgap measure.

The question that I would ask those who question the use of the armed forces and their being a blunt weapon in the fight against organized crime is, what other option was there? There was no other institution in Mexico when the president decided to push back against organized crime that could have borne the brunt of the operational capabilities that were needed to start breaking down the command, control and intelligence capabilities in the drug syndicates.

Do I philosophically or ideologically like seeing military being used in law enforcement? Of course not. There's a reason why the United States has something called the Posse Comitatus Act, which prohibits the armed forces of the United States being used in law enforcement. But in terms what the president was facing, the only instrument that could have been used to effectively push back against organized crime was the armed forces.

The challenge is how quickly we can proceed, as we rebuild civilian institutions in the federal police forces and retrain agents, to substitute the armed forces with the new vetted jointly trained units that are being put on line. And that process, whoever thinks it's going to happen from one day to the next is smoking too much of what we're seizing in Mexico. (Laughter.) It's going to take time.

SUAREZ: Having said that, President Calderon has another two years in his term -- he's term-limited to a single six-year term -- and hands on this policy to a predecessor (sic) who may be of his party and of his point of view, or not. How much is -- how important is continuity in this regard when you're in the -- in the midst of such a big, sustained conflict?

SARUKHAN: The only way that this decision will see us through with the results we all want to see is sustained efforts on both sides of the border. It will not only be that the next Mexican administration continues to rebuild civilian institutions, to strengthen the judiciary, to bring in civil society, to provide watchdog capabilities to what is being done, how you build (straighter ?) social cohesion, but it will also force the United States and Mexico to remain committed, because if we can't fundamentally -- and look, I know -- you know, I know the lay -- the political lay of the land in this country, but if we can't fundamentally, within what's in the books today, modify the current flow of weapons and bulk cash which are coming from the United States into Mexico and which provide the drug syndicates with their firepower and their ability to corrupt, it will be a very taxing challenge.

And we need sustained U.S. commitment with a long-term strategy to change what will be a generational challenge for both countries. And the thing that has to be told very clearly, Ray, to citizens on both sides of the border is, we will succeed or we will fail together.

PASCUAL: And -- but let me pick up on -- it's sort of interesting on the flip side of this, on the Mexican side of the politics of this issue. And it's -- you know, ironically, it's easier for him to comment on the U.S. politics of it and probably me for -- to comment on the Mexican part of the politics.

But one of the phenomena that I think has occurred in Mexico over the last year and a half is that organized crime has touched the lives of more and more people, and in particular as the drug cartels have diversified their business into extortion and robbery and kidnapping and trafficking in persons, but particularly the kidnapping. And here, you know, it makes sense that they -- with kidnapping, you follow the money. Where's the money? It's in Monterrey, it's in Mexico City, it's in Guadalajara. And by definition, it touches a different class of people who are wealthier and have political access.

And what this has done is that it -- it's heightened the politics of the importance of confronting organized crime because it's touching a class of people that have political influence. If you look at the polls today, even though -- if you ask people whether President Calderon's efforts have been effective, the vast majority will tell you no. The -- if you ask them, should he -- should you continue to support or confront organized crime, depending on the poll, between 65 (percent) to 80 percent will say yes.

And I guarantee you, the National Action Party is not the only political party who reads polls. And so -- you know, part of my job is to talk to the political leaders of every single party, and I can tell you in the PRI that every single major political leader, whether it's the front-runner in 2012, Enrique Pena Nieto, or Beatriz Paredes or Manlio Fabio Beltrones or a whole series of others, they will now tell you that these issues of security are issues of the state, not issues of a political party. And even the PRD, while it doesn't have as much of a base, will actually have that general line.

And there will be differences in tactics, but I think that the days when there was a perception that if once -- that once President Calderon was gone, that there will be a throwback to a bygone era, I just don't see that happening in Mexican politics. I think the politics of this issue have so radically and fundamentally changed because of the way they have touched people that I just don't see it happening.

SUAREZ: Lest security and the war on drugs cover the entire session, I want to move on because there are other pressing issues, and --

PASCUAL: (Inaudible) -- on economics.

SUAREZ: Well, yes, absolutely, absolutely. One of -- one of the most interesting parts of our recently concluded midterm elections was seeing how, even though there was no bill on the floor, nothing being marked up or debated in our national legislature, candidates kept running ads about immigration, which usually featured big automobiles filled with big, scary Mexicans -- shot in the dark, fences, people clearing fences, or even in Louisiana, where you don't -- you don't border Mexico in Louisiana -- David Vitter's campaign had wild, xenophobic ads about some Mexican onslaught.

Immigration lay just below the surface. All you had to do was scratch a little bit and it was there. What does that tell you, Ambassador? Even though we aren't in the middle of a debate about how to proceed from now, there isn't a legislative proposal; and yet, there it was, marking out politics. Especially -- as you moved further west, it got worse and worse.

SARUKHAN: First, that it reflects what I have said all along, that there's no more important issue for the future of the bilateral relationship than getting immigration right. And it'll have to be done on both sides of the border: Mexico will have to do things that it hasn't been able to or has been willing to do in the past. And on this side of the border, at some point you're going to need some sensible immigration reform that solves a lot of the Gordian knots of why it doesn't work today.

Immigration -- if you look back at the last three or four electoral cycles, immigration typically -- since the issue reared its head in terms of public consciousness in the United States, which it hadn't probably until the Bush administration -- has become a recurrent leitmotif of the midterms; but usually, in the presidential cycle its profile and its importance diminishes. What we saw again in these midterms is what happened in 2006: The issue did not play itself out in the presidentials; it was there in the midterm. And it has happened just all over again.

I think -- I think, despite the fact that, as you can imagine, as the Mexican ambassador in the United States, and the son of migrants in Mexico -- I'm first-generation Mexico on both sides -- so being the son of migrants in my country, this is an issue that is -- that I care for deeply. So you can imagine some of my reactions to some of the things that were said or some of the things that were shown on TV. But what I think we have to understand is that in a slow economy, with the great, profound changes that are occurring in this society with most Americans feeling -- whether it's perception or whether it's real -- that their kids will not be better off tomorrow than they were today, the issue of immigration has fallen on the floor with a big thud.

It is very divisive. It is very polarizing. It has triggered a narrative, especially on both sides of the border, sort of a Dickensian narrative of "A Tale of Two Cities." For most Americans, the issue of unauthorized immigrants in the United States is all about the rule of law, that people break the law to come into the United States without papers. For most Mexicans, it's not about the rule of law; it's about, A, do Americans recognize the importance of these labor flows to the future prosperity of both countries and, B, are Mexican immigrants getting a fair share because of their contributions to the economic vitality and well-being of America?

As long as we have these two very disparate visions of what immigration is about on both sides of the border, it's going to be very hard to have a more rational discourse across the border on the issue of immigration. But obviously, this is one issue that we will need objectivity, we will need leadership on both ends of Pennsylvania Avenue. Because at the end of the day, labor mobility and the ability of Mexico and the United States to complement each other's economy -- yours, capital abundant; ours, labor abundant -- over the next 20, 25 years, especially when Mexico's demographics are changing profoundly and we are going to become much more like you are in 20, 25 years -- you've got a birth rate of 2.4, I think we've got 2.2, so we are becoming a much older society. So even if, 20, 25 years from now, some of the TV pundits go on their knees to the Virgin of Guadeloupe Shrine in Mexico City to ask for excess labor to come up to Napa Valley, it won't be there, because our demographics will have fundamentally shifted.

So the big challenge is how do we build a bridge between now and when these demographic changes kick in which will -- regardless of whether we want to hash out an immigration deal, won't allow us to, because the situation on the ground will have been dramatically changed.

SUAREZ: During this same time, during our run-up to the midterms, a million people, mostly Mexican, took themselves home. Successful crossings were down. Deportations were up. You would never know any of these things from the tone of the debate in the United States. What's going on?

PASCUAL: Politics. (Laughter.) Look, based on the FBI's statistics, the four safest cities in the United States last year with a population of over 500,000 were San Diego, Phoenix, El Paso and Austin. And last time I checked, they were on the border.

SARUKHAN: San Antonio. San Antonio is the fourth one.

PASCUAL: Was it San Antonio?

SARUKHAN: Yeah.

PASCUAL: I think Austin was actually close behind. So there you go.

The point here is that there's a reality that we've seen on the U.S. side of the border that we've taken policies that I think make sense and have worked, and those policies have been based on investing in more people, in more intensive inspection, working with Mexican counterparts in building capabilities as they develop the Mexican customs service.

We now have 26,000 CBP and ICE agents on the border. During the Bush administration, the average was between 15(,000) and 17,000. And they're inspecting in both directions now, which had not been the case in the past. We've invested more in law enforcement, and part of what was important with the $600 million supplemental for border security that recently passed was actually to allow for more law enforcement activity on the border.

And so one of the things this demonstrates to us, and it's ironically part of the reflection of the solution that we need to build toward in Mexico, is that law enforcement works. Having the capacity to have law enforcement officers to investigate, to have contact with populations, to be close to communities, is an effective strategy in keeping our communities much more secure.

And so I think part of what we have to try to do is educate people that we do have a strategy for law enforcement that can keep our population safe; that we have to strip away some of the myth about insecurity which somehow gets shrouded around or placed around the whole immigration debate.

And then we have to help people understand the benefits to both countries of a normalization of those labor flows. I think Arturo's exactly right that in an economy with the biggest economic recession we've had in a hundred years, with unemployment still at about 9.8 percent, there is inevitably fear, fear that someone else might take your job, or if you don't have a job, that someone else might get to a job before you do. And if we can't provide legal transparency to how our labor markets are going to work, that fear is going to be worse.

And it's clear that -- I would think -- that the reason why there has been as much -- have been as many undocumented immigrants coming into the United States is because there's a demand for that labor. You can have a supply-side push, but believe me, if nobody's hiring, I mean nobody's giving them jobs, this is not going to start -- not going to continue going for a long period of time.

And if we can provide greater clarity and the legal parameters for that labor, then that gives everyone the ability to be able to look at those markets and understand where those labor flows might go and what the conditions are, and, for those who are undocumented now, what the conditions are for them to have a path to legality, whether that's learning English or paying a fine or paying back taxes. If you put those things together, then I think we have the capacity to actually move forward and have a better substantive solution.

But the problem today is that there is not the grassroots and political understanding of this. And there just simply aren't the numbers in either the House or the Senate right now to pass legislation. And so -- and this has been interesting for me, and a huge political lesson. There have been those who have told the president, look, you know, just take this immigration issue off the table for a while. It's hot, there are too many other things out there. And he's basically said no, because it is too important; it's too important morally and it's too important economically.

And he has said that unless we work on building a grassroots understanding about the importance of regularizing immigration flows and creating a legal framework around it, we are not going to be able to achieve success. And the only way to make that change is to keep the issue on the table, to promote discussion and dialogue, to help it occur at the grassroots, and to create the political base over time that's going to allow this kind of legislation to pass.

SUAREZ: We've talked about it in the technical, nuts-and-bolts policy terms: immigrant flows, remittances, labor hunger on this side of the border. But do we have to also find another language for talking to the two publics about the role immigration plays in our societies, has played in our history?

Ambassador Sarukhan mentioned that he is of immigrant stock from two different countries. Ambassador Pascual is also an immigrant to the United States. So this is something that's shaped who you are as 21st-century men. You understand it, but do your publics?

Are they ready to have a different kind of discussion about immigration from the one that we've had, and really isn't working so great for the United States, frankly?

PASCUAL: Well, you know, I mean, one of the things that's ironic is that in the polls in the United States you'll get a response that says 70 percent support comprehensive immigration reform, and yet 50 (percent), 55 (percent), 60 percent support legislation similar to SB-1070 in Arizona. And those are two fundamentally contradictory responses. And it demonstrates, on the one hand, what I think Arturo and I are both saying, that there is a degree of fear there, and that fear factor is what's leading people in an environment of uncertainty to reach out and look for something, anything, that gives them a sense of certainty and protection about what immigration might be, even if it's what I would think is the wrong answer.

And yet at the same time, there is this instinct that there needs to be some comprehensive reform of the system. This has not been translated back into a consistent set of public policies that the population can support. And here, I think, in the United States, one of the things that's going to be important for us is to develop an understanding among politicans and to be able to go back to a bipartisan base that we were able to have for a period time in the middle of this decade, but the constituencies that one could put together before, even with the same actors right now, you can't put them together.

SUAREZ: Right.

PASCUAL: And so I want to believe that some of those individuals have not fundamentally changed in their character and nature. But I think we have to change the political calculation. And right now, the political calculus is that immigration is a bad thing, it's seen only in the context of the recession, and it is going to take a phenomenal job of public education and consistency to be able to change that.

SARUKHAN: I would concur. I'd just probably provide a footnote. Carlos mentioned that around 70 percent of the American public support comprehensive immigration reform. I would probably clarify that. They support the principles that underpin comprehensive immigration reform. But the phrase "comprehensive immigration reform" has become a bad word just like "amnesty."

If you flesh out what comprehensive immigration reform entails -- that is, how to secure future flows of workers that can come into United States in a transparent, legal, orderly fashion; that you bring people who've been living in the shadows out of the shadows, but it's not a free ride, it's not a free ticket; they pay a fine, they go to the end of the queue, they demonstrate that they can speak English, they don't have a criminal record. If you flesh it out, people then give you 70 percent.

But what I'm trying to get at here is the challenge that we face, and which you addressed, Ray, is that the narrative which has been built around getting immigration reform is what is not flying today in the face of the deep economic recession. And our challenge is, as public officials, as media, as policymakers, as think tanks, is how do we create a new narrative as to why this issue is critically important for the future wellbeing of both countries by avoiding precisely the landmines of amnesty or comprehensive immigration reform, which are what dynamited this in 2005, 2006, and for the last time in 2007.

SUAREZ: Part of your problem, the way I see it as a frequent visitor in Mexico, is that the economy can't deliver for a large number of young people. I was in a tiny, tiny town in the mountains of central Mexico doing a story about Oportunidades, the attempt to lift up the poorest of the poor and keep more kids in school for more years. Tremendously successful in the number of secondary educated new young Mexicans that there are.

But I was hanging out with a lot of guys, 16, 17, 19 years old, whose fathers had third-grade educations and second-grade educations, and the only jobs these young fellows could get with their secondary qualification was the same jobs their fathers had with almost no education. And those are the "let's take a chance and try to cross the border" crossers of tomorrow, those young fellows.

SARUKHAN: Undoubtedly. That's why I started my remarks on immigration reform that there were two sides to the same coin, that Mexico had to achieve or attempt to achieve things that had been untenable or they had been unwilling to do, previous governments in the past. Number one is to anchor those jobs in Mexico, create enough well-paid jobs so that 200,000, 300,000 women and men don't have to cross the border into the United States because they're seeking a better-paid job.

SUAREZ: And, Ambassador, if I may, when you say "well-paid," they don't have to be as well-paid as the jobs people would find in Denver or Phoenix. They just have to be well-paid enough that it looks like a better shot to stay with your own parents and friends and the town you know and --

SARUKHAN: So we have to anchor those jobs, because, quite bluntly, our loss is the gain of the U.S. economy. These people are bold, entrepreneurial and some of them talented. And by losing them, we are losing Mexico's ability to reinvest its human capital and to trigger that type of growth and anchor those jobs in Mexico.

The second fundamental equation of this is that Mexico needs to ensure, at the end of the day, that every Mexican that crosses the border into the United States does so legally and, B, through a designated port of entry.

And this has been for many generations, for many governments in Mexico, a very tough nut to swallow. Because the question obviously is, well, are you willing to do something to prevent people from actually crossing portions of the border where they shouldn't be crossing? And that is one of the challenges that Mexico will have to look into. How -- A, how do we destroy and eliminate the organized crime syndicates that are now, because of the squeeze that has put -- (being/been ?) put on their ability to generate revenue from drugs, are now muscling their way into human trafficking, for example? So how do we break down these operations?

And the Mexican and U.S. government have been working together in a very successful program called Oasis for the past several years, which is precisely targeting human-trafficking organizations working on both sides of the border; but also, B, how to ensure what the Mexican constitution also says, which is that every Mexican coming into or leaving the country has to do so through a designated port of entry.

PASCUAL: I have to interject on one thing, because this is, like, too good for a commercial announcement. Today at 5:30 there's a film that will be shown. It's called "Los que se quedan." The director of that film, Carlos Hagerman, is right here. If you care about this issue, you have to stay and watch this film. And it's a shortened version of it and it's less than an hour, but it is extraordinary because what it does is it focuses on the lives of Mexicans who are making this decision about whether to emigrate. And you understand the human tragedies that they go through, because every single decision to emigrate means to break up their families, and it puts the issue in a completely different light from what we're used to understanding in a U.S. political context.

And I think that's part of what we have to understand, that the issue for so many Mexicans is not just a question of seeking to take somebody's job; it's somehow how to give an opportunity to (ask ?) parts of their family. But what they want is not to go and stay, it's to go and return, or, in fact, frankly, to be able to stay to begin with.

The other part of this equation -- and that's at 5:30, right? Okay. So you have my commercial now. (Inaudible.)

But the other part of this issue is, you know, Mexico -- it's part of the contrast of multiple realities in Mexico. I mean, there are 47 million poor people in Mexico, based on Mexican government statistics. And that's the bad news.

The positive thing is that because it's also a G-20 country, it has the 12th, 13th largest economy in the world, a sophisticating (sic; sophisticated) banking sector. But it's a banking sector that doesn't penetrate. And some of these guys can tell you and will tell you a little bit more about this later. But it lends yourself -- lends itself to solutions or at least interventions that can make a difference.

In Mexico, 25 percent of the population has access to a bank account. In the U.S. and Europe, it would be somewhere between 90 and 99 percent. In Chile, it's 60 percent; in Brazil, it's 48 percent.

Cell phones. There are now projects -- commercial projects being developed to allow for the use of cell phones to people to be able to pay their bills. If you could use that, for example, in the Oportunidades program that we were mentioning before, where you transmit the payments vis-a-vis your cell phone notice and you take it to your local 7-Eleven, and the mechanism for that is that the individual now has a bank account which draws down the money, you've suddenly brought 15 million people into the banking sector that were never there before. Those kinds of things can be done in Mexico that don't have the same prospect in other countries that I think can give people a sense of hope that there are the mechanisms to help eradicate some of these problems.

SUAREZ: At this time I'd like to invite members and guests to join our conversation with their questions. Please wait for the microphone. There are runners in the aisles. Speak directly into it. Stand; state your name and affiliation. And please, in the spirit of brotherhood and international cooperation, please ask a question that's a question, that is an actual interrogation. If you're speaking English, your voice will even go up a little bit at the end to signal that there's a question mark there. (Laughter.) In Spanish, we have the benefit of having two question marks in the sentence, so the -- it can't be avoided. But don't make a speech; don't give us your best thoughts on Mexican policy. Just ask us a question. Okay?

Right here.

QUESTIONER: Hi. My name is Ana Paula Ordorica. I'm a journalist in Mexico City. And I wanted your comments on today's Washington Post story on joint operations security, or military cooperation that is going on.

SARUKHAN: A very, very short response. There are no joint operations. And the Washington Post article doesn't speak about joint operations. What there is, and what the Washington Post article talks about, is enhanced training, exchange of intelligence, and what is a normal process in an area where the relationship had gone further and this had lagged behind, which is the normalization of the military-to-military interaction between the Pentagon and the Mexican defense ministries.

As you know well, one of the results of 9/11 was that the United States re-created its regional command, its (sync ?) system, and created NORTHCOM for North America. And Mexico for decades had been sort of in limbo. It wasn't part of SOUTHCOM. It had a -- sort of a special relationship with DOD directly through the Pentagon. And after 9/11, Mexico was put with Canada in NORTHCOM. And for many years after 9/11, Mexico refused, for many reasons -- oh, visions of the relationship -- refused even to acknowledge the fact that their interaction was through NORTHCOM.

And one of the things that has changed dramatically in the past years is that there is a much more normal relationship between both Marina (ph) and Defensa (ph) in their relationship, formal, institutional, with NORTHCOM, to the point where today we have, like the Canadians have in NORTHCOM, Marina (ph) and Defensa (ph) liaisons in Colorado Springs working on day-to-day basis, and the institutional ties and relationships with the Pentagon.

The article is also addressing something that Carlos and I and our colleagues in the Mexican and U.S. government have been working on since we kicked off Merida, which is, how do we ensure that the intelligence, the information, that the processing of that intelligence information provides an end game, it provides a result, that that information, the collation of the analysis provides the results that we're looking for, which is arresting the bad guys? And so what you see in the article today is simply manifestation of a relationship which, as the rest of the bilateral relationship in terms of security, is moving into the 21st century.

SUAREZ: Ambassador?

PASCUAL: Arturo is absolutely right. And the only thing I would add is that if one compared the levels of cooperation -- and we have intensive cooperation across virtually every single part of our two governments -- and the area which is most intensive is actually among law-enforcement agencies. And if -- you know, the extent to which DEA, FBI, Department of Justice are constantly working with their counterparts -- and, I should add, CBP and ICE -- in Mexico far exceeds anything that happens on a military level.

I mean, just to put it in context, this is an extraordinary issue for some people because of the historical context that Arturo mentions. I think generally the challenge that everybody faces is at a point in time like this, when we understand what the long-term solutions need to be in terms of building capacity, establishing the rule of law and so forth: What is it that can be done to bring to bear the intelligence and the experience to make the most effective use of the forces and the capabilities that are -- that are there today? And that's the challenge that they all face and that they're working on on a constant basis, is how to share experience on how to bring greater capacity to have an impact. Because it can't -- we can't wait the 5 to 10 years that it's going to take to build up the institutions.

So what do you do in the short term? And that's why I think it's important that we bring all the capabilities, experience that we have, recognizing that the vast, vast bulk of this is actually going to come through U.S. law enforcement agencies and their cooperation with their counterparts.

SUAREZ: Yes, sir?

QUESTIONER: Thank you very much. Christopher Graves with Ogilvy Public Relations. It's clear that the trade relationship is that the drugs go to the U.S. consumers; the guns and the cash come south from the U.S. They aren't at gun stores that we know of in Mexico; the guns all come down from the U.S. side of the border.

But these are two issues in this political climate that would seem to be very, very tough for anybody to take on in the U.S. How do you get the U.S. to acknowledge complicity, and how do you get the populations and populace who understand the complexity of the problem, to see that the U.S. is in fact a culprit?

PASCUAL: Maybe let me start, since part of it comes here on what U.S. policy is and what we do about it. I think, first of all, the president of the United States, the secretary of State, Secretary Napolitano and others have been very clear, and the number of times that we've talked about co-responsibility, from the first visits to Mexico, have been very straightforward and constant.

The president has consistently emphasized that the kinds of issues that we're dealing here -- with here, in narcotics trade and organized crime, are transnational issues, and they have points of supply and demand and transit that cover the entire hemisphere; and therefore, they need transnational solutions and that we all have to participate in doing our part to advance those solutions.

And so we need to do this because it's part of our responsibility to in fact come up with solutions that are effective for the United States.

You didn't, in your list of issues, talk about drug demand, and that's one of those things that we need to put a strong -- a stronger emphasis on, and this administration has developed, I think, a more comprehensive and creative demand-reduction strategy than we've seen in the past, dealing with issues from prevention to treatment, to working with addicts, to working with prisoners, to providing job alternatives, to community grant programs, and we've increased the budget for that. Well, we've requested an increase of 13 percent. We're on a continuing resolution, and we don't have that increase yet, but that's one of the things that we need to come back to.

There's a huge amount more that we need to do. And if you look at what was done, for example, with tobacco and the efforts of our wider society to educate people on reduction -- reducing use of tobacco, it just underscores how much more we need to do.

On arms, part of the solution is stronger and more consistent inspections, but, you know, realistically, a 3,000-kilometer border, it's going to be hard to stop everything that's potentially moving across. And so you inspect to deter, but you inspect not expecting that you're going to catch everything.

And so one of the things that we've done with Mexico is introduce an electronic tracing system, which is the same electronic tracing system we have in United States. It's been translated into Spanish. It's been licensed to be used in Mexico. And by entering the serial numbers of guns that have been seized, it allows us to look at the last point of sale, and then analyze the patterns of sales from individual gun stores or who the purchasers are, and to build up cases.

So for example, in August, we had a very strong case and a conviction. Two individuals ran a network of 10 straw purchasers selling AK-47s to the Sinaloa Cartel. One ended up in jail 57 months, the other 48 months. That's part of the -- a critical part of the strategy is that you have to create a cost to the illegal export of arms.

On money-laundering issues, these are issues that we're both trying to intensify the work that we do. We've had a lot of good work at a macroeconomic level that allows us to compare the financial flows between both -- between both countries.

One of the things that is a consistent challenge is, how do you bring this down to individual accounts, companies, real estate transactions? And so a key element here is going to be to build up the tools that allow that to happen. For example, Mexico is now in the process for the first time of creating digitalized property registrars. They've -- they started the process in 19 states. They haven't begun in 13 other states. But in the past, it hasn't been able -- they haven't been able at a central level to analyze who owns what property and how to trace that through the country, which creates a huge loophole.

These are the kinds of things that I think we can do together. And it requires a recognition, yes, on the United States we have a responsibility and that we have to take action on our side of the border. But we need to work on both sides, and we need to keep a picture -- a view of the -- of the importance of sustaining the rule of law.

And I'll just close with this point, and to underscore how important it is. You can buy an AK-47 in the smallest village in Africa, anywhere. It's just a question of margin on the price. So in the end, one of the factors is, yes, we have to make it harder to sell those in the United States. But at the same time, we have to keep combining this with all of the other efforts that we've been saying about promoting the rule of law and being able to crack down on violence, because demand -- and unfortunately, demand, whether it's for drugs or whether it's for weapons, can be a very powerful force. And one has to work on both sides of the equation.

SUAREZ: Sir.

SARUKHAN: Can I very quickly respond to that?

SUAREZ: I'm sorry.

SARUKHAN: Thank you. I'm convinced that, despite how tough this issue is -- and you can imagine that I am not the flavor of the month for the NRA when we talk about the issue of guns going south -- I do think the NRA can become a very important co-stakeholder in Mexico and the United States governments' efforts to stamp down on flow of guns towards -- going into Mexico, for one very powerful reason. The Founding Fathers didn't draft the Second Amendment to allow international organized crime to, A, illicitly buy weapons in gun shops and gun shows; B, illicitly cross them over an international border; and C, sell them to individuals of a country where those calibers or types of weapons are prohibited.

So if we can work with the NRA and the U.S. government in getting the information out, making people and owners of FFLs -- federal firearms licensees -- understand the rules of the game as it relates to guns in Mexico and why these guns going over the border pose a significant threat to Mexico's security, I think this would be a win-win for the NRA. They ensure that they are not being criticized for being -- for allowing, either complicitly -- or overtly or covertly allowing guns to go into the hands of drug traffickers who then cross them over the border into Mexico.

So I would certainly call upon the NRA to step up to the challenge of working with us and with the U.S. government, in finding out -- in devising a new ethics code that we can work together with. We can educate owners of gun shops and the people who go to gun shows, and create awareness of how this impacts security on the other side of the border.

This isn't about -- I may or may not agree with what's in the Second Amendment, but that's beyond the point. As Mexican ambassador to the United States, what I need to make sure is that what's in the books is enforced, and that we can work with Americans from all walks of life in converting them to co-stakeholders of ensuring that those guns are not going into places and into the hands of people that they shouldn't be going into.

QUESTIONER: Hi. Jonathan Chanis, New Tide Asset Management.

Could either or both speakers please say something about the state of Mexico's oil industry, its prospects for reform, the prospects for cooperation with American companies, and stemming with a really serious production decline?

SUAREZ: Ambassador?

SARUKHAN: Mexico -- this is the first administration that has attempted to tackle the huge challenge of: How do we open up the energy sector in Mexico so that it can continue to provide for the economic well-being and the growth of Mexico over the next decades? The first bill that was presented by President Calderon and approved by Congress, by all parties in Congress, is certainly a first step in the right direction.

Is it enough to change the nature of the game and to allow PEMEX to capitalize and to be able to do the deep-sea water exploration and drilling that it needs to, to be able to continue to provide not only for our growth but also for one critically important issue that we face in North America -- Canada, Mexico and the United States -- given that on any given day it is Canada or Mexico that sells you the highest percentage of your oil on a given -- on a daily given basis. How do we -- how do we ensure energy security in North America?

SUAREZ: Currently, foreign investment in PEMEX is not allowed, right?

SARUKHAN: It is not allowed. So what I -- what I think is clear, much in the same way as Carlos was speaking about perceptions across the ideological and political partisan realm in Mexico as it relates to the fight against drugs, I think much in the same way, with a few exceptions, I think most political actors in Mexico today understand that the style of (couante ?), in terms of our energy policy, is untenable.

We have been able to stabilize Cantarell, which is our main oil field. There was the -- Cantarell had been experiencing a precipitous drop in its production. That is now being stabilized.

But what is very clear and must be understood is that it's not going to increase. It's going to stay level if we continue to inject the resources that we're injecting into PEMEX, but in 10, 12 years, Cantarell will be drying out. So the huge challenge is, how do we open up the energy sector in Mexico so that foreign or domestic private investment, in whatever form or regime that you can devise and push forward, can ensure that PEMEX continues to be a viable company that continues to provide growth for Mexico and continues to provide security for the North American region?

SUAREZ: Quick comment, Ambassador?

PASCUAL: Yeah. I mean, production in decline from 3-1/2 million barrels a day to 2.4 million barrels a day -- it's now up -- getting close to 2.6 (million). The current head of PEMEX, Juan Jose Suarez Coppel, is a very talented individual, Ph.D. from the University of Chicago. He has brought a more creative approach to how you could use the existing legal framework, to be able to work within it to attract the best technology and capital.

One of the reflections of that is that PEMEX is the largest customer of the U.S. Export-Import Bank in the world, with an exposure of about $7.8 billion. With the use of U.S. technology, in particular applying it to the re-injection of gas to fields that have previously been abandoned, they've been able to go back and reopen a number of fields, which has been part of the main reason for the -- reestablishing some of the production.

There's now a more aggressive exploration and production program. At the end of this year, PEMEX will issue tenders for what it calls incentive contracts. These are mechanisms that have been created if you can't have private investment in the Mexican oil and gas sector, how to bring in on a contract basis major international companies and not only pay them for their services but provide certain incentives that compensate the success or failure of the work, which might be a slight compensating factor that will bring it closer to the financial calculations that you would have if you had an opportunity for an equity investment -- unclear how those are going to work, but it's -- within the current legal framework, it's pretty much about as far as PEMEX is able to go.

SUAREZ: We have time for one more. Yes, ma'am. Stand up, so they can see you. We'll get you a mike.

QUESTIONER: Hi. I'm Alexandra Starr from the Center on Law and Security at NYU Law School. Ambassador Pascual, you spoke a little bit about a grassroots campaign to, I guess, cultivate support for immigration reform. Can you elaborate on that a little bit? (Inaudible) -- timetable for actually submitting legislation?

And you know, part of the problem, I guess, is the fact that when these debates flare up -- I'd be interested in getting your opinion of what happens in Mexico as they see the kind of emotions that are unleashed when the U.S. grapples with legislation of that kind.

PASCUAL: I -- yeah, I think I'd be in serious trouble if I actually tried to give you a timetable on legislation. And I think probably some people in the White House would think that they -- they're controlling the legislative agenda, and we'll see what the timetable is.

It -- the -- what was -- what has been fascinating to is to see that there are grassroots groups throughout the country -- some of them are Mexican-American-based, some of them are not -- who have an interest in trying to normalize the legal framework for immigration.

About three weeks ago, I spent some time in Los Angeles making -- meeting with a whole range of different Mexican-American organizations. And what they've all realized is that they feel affronted by what's happened and the inability to move forward aggressively with legislation, but they actually haven't united in some way of advancing those legislative efforts. There are some groups, like La Raza, which has played historically a much more centerpiece role in trying to organize the Mexican-American community.

I think the challenge right now is to try to build up a coalition that includes the traditional constituents -- in particular, the Mexican-American community -- other immigrant communities, so that it's not just a Mexican issue but that it is more broadly based with Hispanics but also other immigrant groups that are seriously represented in the United States, and then the business community.

The challenge, of course, in all of this is where the dialogue -- how the dialogue is going to be -- is structured and formulated with the labor unions, because there is where the greatest fear factors lie. And if one can reach a better understanding with the labor unions on how immigration reform and a transparent legal base can also be of benefit to U.S. labor, then you potentially have a formula that can work.

But the trick is going to be to bring constituents to -- constituencies together, because if you have different immigrant groups with their own perspective without uniting, if you have businesses on the other side of the equation pushing for only part of the agenda, then you end up with this clash, and then you end up with a Republican/Democratic split, where the Democrats are willing to look at the social-justice issues with the undocumented workers in the United States but don't want to talk about future flows, and you have Republicans who want to talk about future flows but want -- don't want to talk about undocumented workers. Right?

So the key right now at the grass roots is how to bring those together. And that, quite frankly, is still an evolving process. But that's why the president has said we've got to keep the issue on the agenda, because if we take it off the agenda, then the momentum for it is going to go away and you're not going to get the kind of push that's going to be necessary to bring together and get some consolidation of those constituencies.

SUAREZ: Ambassador, very quick response to Ms. Starr, and then quick final comments from both of you.

SARUKHAN: The question is how this would impact Mexico?

SUAREZ: How Mexican public opinion responds when we have the peaks and valleys here on the -- in the --

SARUKHAN: Well, obviously, one of the reasons why I think public perception across both sides of the border seems to be working in the other direction of where government and government interaction is moving -- it would actually seem to be going in the other direction -- is because of public perceptions triggered by the debate on immigration -- how Mexico reacts to things like S.B. 1070 or some of the TV spots that we saw in the campaign or some of the local or state initiatives that are being enacted. There is a -- there is a pervasive sense in Mexico of -- America has gone down the road of nativism. It certainly doesn't make Carlos' or my life any easier in working both sides of the border and ensuring that people understand that regardless of the noise in the system, the relationship is moving forward in a way in which it had not moved in the past 10 years.

SUAREZ: Quick final comments from you both.

Ambassador.

PASCUAL: Rule of law, absolutely critical to providing greater security to populations but also to strengthening business activity; transnational perspective, for business to look at how we work together in global markets; from a security perspective, to be able to work on issues in a way that takes a transnational perspective of mutual responsibility; and window of opportunity, where we have a moment of greater economic competitiveness within Mexico. And it's important to work together to have those economic factors shape the security future and not let insecurity shape the economic realities.

SUAREZ: Ambassador.

SARUKHAN: Just two very brief comments in ending -- or three, maybe, but I'll be very short.

Number one, despite what you've heard today, it would seem that security is the overwhelming issue in the bilateral relationship. It is true. Security is at the core of the bilateral relationship today.

But the bilateral relationship is much more than just security, and it is very diverse. And there are a host of issues that we haven't touched upon today, everything from border infrastructure to how we're working together on environmental issues on the border, which play a critical role in the bilateral relationship.

Second, that the bilateral relationship isn't only about the bilateral relationship. What do I mean by this? That increasingly, Mexico and the United States have been working together on other global and regional issues, the way that Mexico has been working with the United States and the U.N. Security Council, how we are chairing the Security Council in June, work with the United States to send an unequivocal message to Iran in terms of the need for their compliance of all their commitments regarding the pacific uses of nuclear power.

The way these two countries have been working together on issues, which traditionally Mexico and the United States would have not discussed or put in their bilateral agenda, is a huge change. I've always believed as a -- as a Mexican career diplomat, that for a country like mine that isn't a military powerhouse, there are two ways to go around the world: You sit at the table, or you're on the menu. And the only way that Mexico will be sitting at the table is if we can deepen the footprint of engagement with the United States on a number of global and regional issues.

And finally that -- and I don't want to use the term "special relationship" because I don't want our British friends to feel annoyed -- (laughter) -- but I'm piggybacking on their -- on their paradigm -- but there are truly two countries that have a unique relationship with the United States. And both countries have something in common: a concept that was coined in this house, in the Council of Foreign Relations, many years ago by Bayless Manning, who talked about "intermestic" issues, the convergence of domestic and foreign policy, and how this changes the nature of diplomatic relations. There are two countries on the face of the Earth that have the unique challenge of having our foreign policy issues be domestic policy in the United States and vice versa, and the challenges of taking on domestic constituencies to move the bilateral relationship forward. Those two countries are Israel and Mexico.

Thank you.

SUAREZ: Thank you very much for your attention. Thank you to our two ambassadors. And it's probably one of the few times that a Mexican, a Cuban and a Puerto Rican have shared the stage -- (laughter) -- at the Council on Foreign Relations rather than being the opening line of a joke. (Laughter.) So thank you -- thank you for -- (inaudible). (Applause.)

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THIS IS A RUSH TRANSCRIPT.

ANA PAULA ORDORICA: Well, welcome to this final session on this day at the Council on Foreign Relations. Well, just a few introductory reminders. This is on the record, and we would ask all of you to have your cell phones off, as they have interference with the microphones. And we will now begin this discussion on competitiveness between Mexico and the U.S.

Jorge Mariscal is a partner and director of investment research at Rohatyn Group. This is a New York-based management asset.

And then Shannon O'Neil, you know, is at the Council on Foreign Relations, a Douglas Dillon fellow.

So thank you all, and thank you for this invitation by the Council on Foreign Relations. First, we will be talking about the economy, and we know the economy is a very important issue. And for those of us who might have doubt -- doubts about this importance, well, we can ask Barack Obama what he thinks just finishing last week midterms election.

Starting with this subject, I would ask Shannon O'Neil what she thinks are the perspectives or the panorama for the following two years, basically, in the U.S. We always say that if Mexico -- that if the U.S. gets a cold, Mexico gets pneumonia. And last -- the last big shake that the economy had in 2008 was Lehman Brothers. I think the Mexican government forgot all about this, and they were saying that the U.S. had had pneumonia, and we were only going to have a cold. But that was not true.

So, Shannon, I would start with you, asking you what you think are the perspectives for the next two years in the U.S. and how that will affect Mexico.

SHANNON K. O'NEIL: Well, obviously, anybody who's been here in New York or in other places, it's been a tough couple of years and it looks like it'll be enough -- another tough couple of years in terms of the way the U.S. economy moves.

And coming back to the midterm elections, which you just alluded to, this is also going to be tough, particularly with how Mexico relates to the United States. The new Congress in particular I think will be less amenable to many of the issues that are on the table for Mexico, and we've talked already today about security issues. And there -- I think it will be hard to continue at the level that we've seen in the past, and particularly because this is a Congress that's going to want to cut spending where it can.

And as we all know, many of the big parts of the U.S. budget are really untouchable, whether it's Social Security, whether it's Medicare, some of the other entitlement programs. So where will this Congress look to show results? Where can they cut? Well, often programs that go abroad, where the monies seem to go abroad. So Mexico, where it's ramped up in the last several years -- or the last few years under the Merida Initiative may -- there may be difficulties in continuing that level of aid going forward in terms of at least the amount of the money, if not the cooperation that we've talked about.

Also, with this new Congress, as been said already today, I think immigration is an incredibly difficult issue to put on the table. And any sort of comprehensive reform, or even smaller reforms, getting it through the new Congress will be difficult.

But on the economic side, there may be some room to work with this new Congress and then also bipartisan space for an economic side. In part, we may see with more Republicans a bit more openness to free trade and some of those issues putting on the table. This doesn't affect Mexico, but there's a Colombian, there's a Panamanian, there's a Korean free trade agreement waiting in the wings, perhaps some of these might move forward under the new -- under the new Congress.

But for Mexico, on the economic side, as was brought up a bit here, but as Barack Obama has put forward exports are the way we are going to try to grow our way out of the recession -- or at least the slowdown in growth. And for the United States to increase its exports, Mexico is going to be a fundamental part of that. And part of this is because Mexico is one of the largest recipients of U.S. exports -- second-largest destination after Canada. And also because, as Ambassador Pascual mentioned in his talk, Mexico and the operations that are in Mexico are fundamentally important for the competitiveness of U.S. companies.

And it boils down -- do you want to have -- export jobs in the United States. Often, some aspects of it, to be competitive, to have the products be globally competitive, some aspects have to go to places with cheaper labor. And if they go to Mexico, you're much more likely to be able to keep some jobs in the United States, or even grow jobs in the United States, on some part of the production chain, than if those jobs are sent to China or Brazil or other places where much more of the production, the whole line of production moves abroad.

So looking forward, the next few years are not going to be easy years, I think, for either country on a host of issues, but perhaps the economic side is an area where we may see a bit more optimism than pessimism.

ORDORICA: Going further on this one, you know that if the U.S. wants to have more exports, that it's probably a window of opportunity -- or presents a window of opportunity for Mexico.

We heard Ben Bernanke's announcement -- recent announcement where he wants to have $600 billion flow -- put into the U.S. economy that will make it possible for the U.S. exports to grow and for the U.S. jobs -- the job market to be bigger.

What do you see there as an opportunity in specific terms for Mexico?

JUAN PARDINAS: I think it's a huge opportunity. Just last week, President Obama published an op-ed piece in the New York Times, as Shannon was saying, and the main idea that President Obama put forward there was that the U.S. has to double its exports in the next five years. That would, in a way -- to find export its way out of recession.

What I was sorry about -- it was that this article was published before his trip to Asia and not before his trip to Mexico because I think Mexico has a huge role to help the U.S. achieve this goal of becoming a country which imports a lot and to -- in transforming its economy into a country that exports a lot.

I think the speech that President Calderon gave to -- before the U.S. Congress in Washington in May, it was a missed opportunity in that sense because it focused too much in security issues. We talked before about weapons, and I always see the perception of a good sector of American society towards weapons possession as in the same regard as we see in Mexico.

They invest private investment in Pemex. For a U.S. American citizen, they think that freedom is to have a weapon in their pocket. For a Mexican, the fact that just -- the Mexican government has the monopoly over oil, we confuse that with the essence or the soul of our country. So instead of the -- the president went to -- before Congress asking things that cannot be changed in the short term -- it's hard to affect demand on drugs; it's hard to affect -- reduce the flow of weapons from the U.S. to Mexico.

But there is -- was a huge opportunity to start seeing the North American continent as an economic entity, as a competitiveness entity. And I think that message (didn't went ?) through. And that kind of message would have played an (indication ?) of President Obama's message of doubling the export of the U.S, and there's a lot that Mexico could do to help the U.S. achieve this goal.

ORDORICA: Jorge, whenever we talk about security, Mexico compares itself to Colombia. And when we talk about the economy, we compare ourselves to Brazil. I don't know if this is something that happens in many -- in many other countries. It's something that for many, it's already very tiring whenever we think that we are worse off economically than Brazil or we are worse off in security than Colombia.

What do you see in comparison between Mexico and Brazil? What -- how do you see the Mexican economy? And why, for example, are we excluded a very important -- (word inaudible) -- in the economy sector as are the BRICs?

JORGE MARISCAL: Well, you know, it -- the first reason is that if you put Mexico -- it's very difficult to come up with a word that is easy to pronounce in "BRICs" with an M. (Soft laughter.)

But the -- let me -- I just wanted to touch on the impact of the elections on the short-term future of the -- of the U.S. I think one (south-side) strategist put it very interestingly. He said QE2 plus GOP plus ISM is good. And that means the Fed did a new round of liquidity injections through quantitative easing, the Republican Party won and the data in the United States, over the last six weeks or so, has been turning up. Jobs numbers were better. And the Republican victory, I think, means that there's probably a higher likelihood that the tax exemptions that the Bush administration implemented are going to be extended for a larger group of people. And that at least in the short term reduces in our minds the chances that the U.S. is going to slip into a -- perhaps a double-dip or a slow down. And that is huge for Mexico. As we know, Mexico and the U.S. economy are very tight.

On the BRICs, you know, it's -- I think it's a -- it's an interesting question. I think the -- if you think about the size of the economy -- of the Mexican economy, it's roughly about a trillion dollars, a little over. It's very similar to the size of the Russian economy. The population of Mexico is about 110 million. It's the lowest of all the BRICs. Clearly, China would be about 10 times that; India would be 10 times that; Brazil would be twice that.

So -- but per-capita income has been more or less about the same as Brazil and a little higher than Russia. So there are a number of metrics that potentially would say Mexico should have been at least considered with Russia in that (plot ?).

What is missing in Mexico is growth. And if you look at their track record of growth, especially in the last 10 years, Brazil has been growing much faster. Interestingly enough, if you look longer, if you take from 1980 through 2010, the real growth on Brazil, on an annual basis, has been about 2.7 percent; Mexico has grown 2.6 percent. So very similar.

What is different is the last 10 years. And here I would argue that Mexico made the wrong bet, if you wish. Brazil made the bet of going with Asia -- with Asia and China; the U.S. (sic), for historical reasons, made a bet of going with the U.S. And the U.S. has not been growing; it has not been growing, and doesn't look like it's going to be growing very fast.

So I think it's great that the U.S. can get into the -- into the maquiladora mind-frame for this export boom that hopefully will happen in the U.S., but I don't think it's going to be enough. I think it's going to need Mexico to find a way to connect with Asia (and/on ?) the areas of growth around the world that are going to be more dynamic.

ORDORICA: Well, there is -- there are other economies that are growing fast. I -- we talk here about Russia, we talk about Brazil. But there are other world economies that are growing, and it seems like Mexico's economy is stagnant. We sometimes see a good -- a good forecast, but basically things have been very -- have been very stagnant for the past decade.

MR. : Yeah.

ORDORICA: I would like all three of you to comment on this. Why do other countries grow while we remain put?

Shannon?

O'NEIL: Well, there are a lot of things that are put out there why Mexico hasn't grown. One is, you know, they were some of the -- one of the first countries, at least in Latin America, out of the gate in terms of putting forward economic reforms, opening up their economy, creating a more stable macroeconomic environment. And all of that was good, but they didn't go far enough. There were many reforms that were left still on the table, whether it's labor reform, whether it's reform of PEMEX, of the -- of the oil industry, whether it's opening up markets beyond just one company or other companies, and how some of the reforms or privatizations were done that then slowed down the growth and overall competitiveness. And that's one aspect that's out there.

I mean, another aspect which touches on what Jorge just focused on was sort of the bets that Mexico has taken. Mexico took a bet with the United States, but it also was hit much harder by China and by the rise of Asia. And so while Brazil benefits greatly from China's growth, Mexico often is hit by China's growth. It becomes a competitor, not a supplier, to this boom that's coming from the other side of the Pacific. So both of those sides hit Mexico.

And then there's other, longer-term structural factors that may not have to do with just today's growth or the growth of the last 10 years but where Mexico, when you look at some of the rankings, the World Economic Forum and the way they put things forward, Mexico -- while other countries have finally started moving forward, Brazil's started moving forward or Peru or other emerging markets have started working on their institutions and their corruption, improving their educational systems, increasing their inequality, some of these things -- Mexico, while it was first out of the gates, has been much slower this decade and then hasn't reaped the benefits that these other nations that it competes with in the emerging-markets base have.

ORDORICA: Well, it seems that -- Lewis Carroll, writing "Alice in Wonderland," he said that -- well, there's a phrase where Alice says that she -- even though she's -- tries to be running, she feels like she's standing in the same place. So maybe that's something that is happening to Mexico.

Juan.

PARDINAS: Well, yeah, we are kind of running to stand still. And "stand still" meaning we are not doing the things we should do, and we are -- keep on doing things we shouldn't. For example, in the energy sector, we are basically the closest (sic/most closed) economy in the world, preventing foreign or national investments to take out Mexican oil. Even the communist regime in Cuba has a more open investment framework for energy. So when Fidel Castro could teach you something about how the market economy works, maybe there you have a problem. (Laughter.) The thing is that we still -- or at least our political leadership -- have not realized the depth of the problem.

In this case, it's a legal obstacle to invest in the energy sector. But, for example, in telecommunications, just at the beginning of the year, there was an opening; the government -- I don't know exactly the terms in English, but a new opportunity for investment in cell phones for -- to -- a new frequency, yeah, frequency to -- and they gave at what was considered a very good price for investment in this -- in this frequency. And then the investment was opened for the whole world. Any telecommunication company in the world could go to Mexico and invest and buy these frequencies lots in order to have a share of the -- of the market of cell phones.

Basically, no one came. No one was interested. And it was funny, because in the Mexican press there was a huge riot: how were -- we were giving away a very priced -- high-priced commodity of these frequencies, but no matter we were giving it at -- (inaudible) -- prices; no one was interested. Just Nextel and Televisa, the big TV network in Mexico, decided to make a joint venture to invest in these slots and start becoming like the fourth -- (inaudible) -- the fourth-largest company in the cell-phone sector in Mexico.

But then, all the process -- the legal process started, and now there are like 70 different judicial procedures in order to stop this measure. So basically, Televisa broke with Nextel and said we cannot go on.

So from one side in the -- in PEMEX example, you have the constitution and the law preventing investment in the energy sector. In the -- in the example of Nextel and Televisa, you have a whole judicial structure benefitting the current players, the big players in the cell phone industry, stopping competition and stopping investment.

So yeah, we're basically running to stand still because things are not changing. It's quite frustrating. I write in a newspaper back home in Mexico, and sometimes I read articles I wrote like seven years ago, and I could publish them next week, and they could still be timely due to the lack of reform in Mexico. And I think that's the big difference between Brazil and Chile.

As Ambassador Pascual was saying this morning, Brazil has 25 murders per 100,000 inhabitants. Mexico has around 14. But in the global media, who -- which country has the perception to be more violent? Well, Mexico is, because Brazil has managed to get a different narrative. Despite all the killings that happen in the favelas in Rio and ordinary crime in the big cities of Brazil, they have managed to construct this narrative of a country that is changing. And that's what Mexico is not doing, effectively running to stand still.

ORDORICA: Jorge, do you think this is all a problem of narrative?

MARISCAL: No. I don't think it's only a problem of -- the fact is -- you know, I just came from a presentation by the Mexican Stock Exchange at a -- at another event. And they were very proud that if everything goes well and an IPO that was going to happen today happened -- I think it was already priced, a 1 billion IPO, for an infrastructure company in Mexico -- they were very proud that if that happened, the total amount of IPOs in Mexico is going to probably be around 5 billion for all of 2010. Petrobras placed 60 billion less than a month ago for an IPO that is going to fund its investment program. It's a big difference.

You know, I think energy is central to this debate. Mexico still -- the Mexican government gets 40 percent of its revenues from taxing oil, oil revenues from PEMEX. That starves the company from investment.

Mexico has more probable reserves than Brazil does, but not more proven reserves than Brazil does because it hasn't invested in it. If Mexico were to do what Brazil did, simply float the company in the stock exchange and allow it to fund itself through the capital markets, you could save 40 percent -- potentially 40 percent of revenue that could invested in education, that could be invested in infrastructure.

It is not just rhetoric. It's not just narrative. It is happening. In Brazil, it's happening. And that's generating a phenomenal amount of foreign direct investment. The problem in the short term in Mexico could be solved by increasing foreign direct investment -- has been stagnating. And a lot of that is because there's no incentive to invest in telecommunications. There is no incentive to invest in oil. In Brazil, it's happening. There is incentives. There is a premium to be there. The growth is occurring.

Yes, and that's why crime, while important, takes on a relative perspective. In Mexico, unfortunately, we don't have the kind of growth, we don't have the interest, and we also have the crime.

ORDORICA: Well, it seems like somehow we've come back to a crime and insecurity issue, although we don't want to. For example, the Ministry of Finance in Mexico has been giving numbers of how things are going in the country, where we have a very stable interest rate, the most stable in decades; where we have big reserves in the central bank; and somehow other ministries say that insecurity is starting to cost in Mexico.

What do you think, Shannon? Is there any cost in crime or -- with crime and insecurity that takes a toll on the Mexican economy?

O'NEIL: Sure, there has to be a cost. And I think even the Finance Ministry's coming around. There is a cost. I mean, there's a cost in the day-to-day, you know, revenue lines of companies. You know, they either have to pay for increased security and preventative measures, and/or they often have to pay extortion fees to those -- to keep their businesses open. And these costs hit disproportionately on small enterprises. They're less able to buy armored cars. They're less able to protect their employees than the larger corporations, where it's still a cost, but it's a percentage of their operating expenses. It's not, you know, an overwhelming cost that perhaps companies -- smaller businesses, you know, microenterprises or small enterprises, can't deal with. So there's definitely a cost on that side.

There's a cost we see in foreign direct investment, in people making decisions: Am I going to put a plant here? Am I not? It's not that they don't come to Mexico, but all of those executives that are thinking about coming to Mexico have a discussion about security now. So there's a cost there.

And there are longer-term hidden costs that I think are developing, particularly in places that are quite violent, whether it's Ciudad Juarez or others, in that it disrupts housing markets, mortgage markets. Those have just started to develop in Mexico in the last 10 or 15 years, where mortgages have become more available, credit is starting to expand, which has been a good thing for Mexico. But if you have thousands and tens of thousands -- perhaps hundreds of thousands -- of people fleeing the area, obviously, mortgage markets and housing markets decline. And so can you pick up that fabric again? That hurts the economy -- and not just for today or tomorrow, but for the long time. So there are costs there.

What perhaps the finance ministry is suggesting -- which may be right -- is that the costs are not yet as drastic as one might think when you read the bloody headlines.

MARISCAL: Let me just add, you know, in a dark-humor kind of way, there's also a benefit. As you know, the majority of the killings happen among the bad guys, and that, by logic, increases per capita income, by reducing the capitas and increasing the quality of the capitas. (Laughter.) Just -- but there is a -- there is a study that has been done by Bancomer recently, BBVA Bancomer, that estimates all the costs of tourism, people not going out to eat at night, which is something we were discussing before, the lack of (FBI ?), all the costs of protection -- the cost of police effort and the army effort. And the estimate's about 1 percent of GDP. They also did a cross-sectional study that said if Mexico is able to bring down their rate of homicide by 10 percent, then the per-capita income would grow by .5 percent.

So it is -- it is very real. There are numbers out there that are being estimated. And when you think about compounding that 1 percent or that half a percent over the next 20 years or, in the Goldman Sachs projections for BRICs, the next 30 years, Mexico could -- just that 1 percent could put Mexico above Russia or Brazil easily, you compound those numbers.

So it's a very real cost today, and -- (inaudible).

ORDORICA: One always likes to think things the other way around. That's how I see it. Maybe catering companies are starting to grow because you now have to have meals at your house and not go out to restaurants, or security companies are doing better off, it seems. I mean, I -- we -- I mean, I do see in Mexico companies where they armor your car, and that is something that we didn't see before. And now you see them in Masaryk, in the main streets in Mexico City.

So I just wanted to see if you can go out of the obvious and think of something -- (chuckles) --

PARDINAS: Not this time, I'm sorry. I think it's having quite an impact, especially regionally, in the places that have been mostly affected. And obviously there are new sectors breeding out of the crisis, but in general I think it's affecting the economy. And there are some other costs. We would never be able to measure, with no metric or method, which are the decisions that are being -- taking place right now in a board -- I mean, a meeting in a -- in a big company here in Manhattan, or in India or China, investment decisions that are being canceled and never happen. But that's still not reflected in the big numbers of the economy. And -- but maybe at one point it will.

One message I want to get through is that we are becoming a federal country in this -- in this war crisis, because in Mexico City it really has a very different perception, and the feeling of living there and wanting my small baby to grow there and seeing that there's a possibility to have a happy and prosperous life in Mexico City really gives a different perspective of what's happening in other regions of the country. So I think it will affect the nation as a whole, (maybe in ?) foreign direct investment. But in some other places of the country you don't really feel the pain and the anguish that other co-nationals are having, like in the north part, in Tamaulipas, in some places in Nuevo Leon. So it's really having regional impact, and -- but from the world perspective it's a nation as a whole.

ORDORICA: We were talking before about this article that Thomas Friedman wrote about Mexico. He was down in Mexico mid-year this year, and he said he -- what he saw was that the future of Mexico depended on one of three Ns: the NAFTAs, the narcos or the "no"s. The NAFTAs are the people that have benefited because of the North American Free Trade Agreement, the middle class that Ambassadors Sarukhan and Pascual spoke earlier today. The "no"s are the people that benefit from the status quo in Mexico, where they benefit from things working the way that they sometimes, more often than not, work, where there is bribes involved and where politicians get high revenues from working things not through the rule of law. Those are the "no"s. And the narcos, we all know who they are.

So one of these three might prevail, or has to prevail. All three are probably today clashing between themselves. I wanted to see what perspective you three have on who will prevail or how we can make the NAFTAs be the ones that prevail in Mexico.

Shannon.

O'NEIL: I think an untold story about Mexico, or at least the way that people in the United States, a perception of Mexico that you see, is the NAFTAs, as he puts it, but this middle class. And depending on how you measure who's in that middle class, it's anywhere from 30 million to 45 million people. And so while we talk a lot, and we have today, that, you know, poverty levels are quite high there, that nearly half of the nation can be considered in poverty there, there is this huge, vibrant middle class. And that has grown particularly since NAFTA was put in 15 years ago.

And this is really a potential future for Mexico on the positive side, and for the United States, frankly, in that relation. This is a group that politically led to change there, in the opening up of democracy in Mexico. They pushed first Vicente Fox and then Calderon over into power and changing the system there. They are also those that have created, you know, small, medium-size enterprises, those that employ the most number of people there. And they are also the ones that when we talk about poll numbers on security, they're the ones that are pushing for rule of law. They're pushing for -- and civil-society organizations that they support and they originate are pushing for -- these changes that obviously Mexicans want, but the U.S. and those who focus on Mexico want as well.

So this to me is -- I mean, it's the optimistic scenario of the three. But I think there's a real force there. And I think if we turn around and look at Mexico 15, 20 years from now, or 2050, as the BRICs like to do, there's a -- there's a strong possibility that we will see a nation transformed, and transformed in the ways that we want it to transform -- that it will be BRIC-worthy.

But these other options are there, but I think this is a forgotten story. And often when you see the headlines that are the negative headlines, you forget this class that is -- that is growing, that increasingly has political power and has economic power. Important for Mexico, but important for the United States as we try to grow our exports going to Mexico, these are consumers too, and they will help us as much as they help their own country.

ORDORICA: Jorge.

MARISCAL: I'm optimistic medium term, I think for part of the reasons that Shannon mentioned. The middle class demands will, over time, percolate through the institutions and the political system. And we're -- I think we're seeing still the early stages of Mexico's democracy. I think they -- you know, they got (free vote ?) and the respect for the vote, but there are a lot of things that haven't happened and are still being discussed, like the reelection of the congressman, potentially having a second round.

A number of things that I think will increase the accountability of the politicians -- they're beginning to reform the courts so that they have, you know, the juries, the trials are open, like in the United States. I think a lot of what allows this regime to continue is impunity, and the impunity is based on this rule of law, and the rule of law is based on the accountability of the legislative powers that are behind it. And that is changing; it's just changing very slowly. It's changing in generational terms rather than in a couple of years or three years, and it's very painful and it's very difficult to watch. But it is changing.

So I think in, you know, 10 years' time, I do think the levels of criminality will go down, the rule of law will be stronger, I think Mexico will have overcome a lot of these issues. But it's going to be -- take time, it's going to take a lot of perseverance, and of course, with a political change coming, and most likely the PRI winning the next elections, there's a question mark of whether there is going to be a temptation to go back and sort of work out a deal with the bad guys and (the noes ?) gaining a little more power in that. And I think the -- we need to watch that carefully. There's always that risk.

ORDORICA: Juan?

PARDINAS: Well, the average Mexican could measure its life like in years or in soccer World Cups. For example, I was born when Brazil won the World Cup in 1970. I went to high school when Spain held the World Cup and Italy won.

But we could also measure our lives in financial crisis. So I went to elementary school in '76 with the crisis of Echeverria. Then six years later we had the crisis of Lopez Portillo. Every presidential term finished with a crisis. It was like first the summer, then autumn, then winter, then the presidential term ends, and then comes a crisis.

Well, for the first time in 15 years, we haven't had a financial crisis, and that's -- that, with NAFTA in parallel, has created a new generation of Mexicans.

And I would let myself the freedom to tell a short personal story. My sister-in-law, she just finished university. She's 23. And she told me the other day: I'm going to start my own company.

And my reaction is like, are you nuts? (Laughter.) You should get a job, do something real, get -- how would you come risk your life? And you just have a computer and a degree in math -- mathematics. How are you going to start your own company?

Well, she started it. Two years later now she has 15 employees. That's something someone in my generation -- I'm not -- the time difference between her and me is not that big, but I would never dare to start my own company because I was used to seeing my dad seeing every six years having a huge personal crisis of paying the mortgage. I'm the first member of my family of having a mortgage in two generations.

So this -- the story of my sister-in-law, my mortgage, is that the building of a new ground of this middle class that Shannon was talking about. And I'm really positive that that would be a force of change, that that would be the kind of civil society that would demand institutional changes that we need to improve security, to improve economy.

Sad to say is that this middle class has not yet become a critical mass to pressure our political leadership in order to take the changes and reforms we need to broaden this middle class not just to 40 million people, but to make it happen 60 (million) or 80 million people. But if 15 years ago you would tell me that a young professional that just finished university, their first choice of career would be to start a company, I would say that would not happen in Mexico.

So in -- if in 15 years you tell me Mexico would be a stable, peaceful country, now I think that it would be possible, as this -- as I have seen and experienced in personal basis this social and economical change as a consequence of economic stability and also open markets with the U.S.

ORDORICA: Well, I think one more subject would be interesting to touch in this economic cycle, and that would be transparency.

Shannon, you usually talk and write about the importance of institutions, of strong institutions in Mexico. And one thing that the federal government has been working is transparency, but it has stayed at the federal level. What is your intake on Mexico's course or Mexico's way of working through more transparent and more solid institutions?

O'NEIL: I mean, that -- we've been talking about a lot of things today, whether it's rule of law on the security side or here, on the economic side, sort of opening up and making these markets more transparent and competitive. It comes down to that sort of transparency and accountability and where the government fits in there.

I mean, as you said, Mexico's federal government has taken several steps in that direction. Sometimes it's two steps forward, one steps back, but you can say it's going forward.

Where it comes down on the state level, you are starting to see it, and you do in -- and Juan, you have data on this. Those places that seem to be more transparent and more open and more competitive are doing better. And so you see a difference between particular states and others, between particular regions of Mexico and others.

And so looking at Mexico going forward, that seems to me to be a crucial issue. And in part, it's because it's just more transparent. It's much harder to have the corruption, much harder for the -- (inaudible) -- to insert themselves and take their piece of the cut, or for the narcos, frankly, to get in there and put themselves into the economic equation or the political equation.

But it's also an issue -- one of the big challenges Mexico faces -- and many emerging markets around the world, but Mexico faces -- is the issue of a very large informal sector. In particular, with the recession, we've seen more and more companies move into the informal sector -- people, at least, working in the informal sector. How do you move people out of the informal sector into a formal economy? And formal economy is quite important, because then you know where they are; you can -- you can tax them. But you also can set up a much more transparent, open system, and a more even playing field in terms of competitiveness. And that is something Mexico needs to strive for. And how do you do that?

Part of it is openness and transparency. Part of it, which we haven't talked about as much here, but I think is quite important for Mexico -- and I think there's some optimism here -- is the issue of credit, and how credit flows and financial flows throughout an economy.

Mexico has a, you know, quite strong formal banking system, with a lot of big international players there. But it doesn't penetrate lower levels of the economy. And you look at countries like Brazil: credit is much, much more available. And in part, that's how you get small companies, medium-size companies, that provide economic growth and provide jobs. And if that's what we're worried about, jobs in Mexico -- for issues in the United States, like immigration and others, but for Mexico it's growth -- you need to increase credit which also can bring companies into the formal sector.

Now, I do think there's some -- actually, some positive signs in Mexico on the credit side. Mexico in the last 10 years has moved from just the big traditional banks to allowing new banking licenses for companies that weren't traditionally bankers but that appealed to lower middle classes. You know, one is one of the main sort of appliance and other type of stores, where you can go and buy your washing machine on layaway plans; was given a banking license eight, nine years ago. And so now you go into their stores, you can also open an account. And it appeals particularly to working classes. Wal-Mart in Mexico, a large player, also now has a banking license.

And just a year ago, there was a law passed that will allow banking activities to go on not just in brick-and-mortar banks, but in places like supermarkets or pharmacies or your local stores. So all of a sudden, rather than having, you know, eight (thousand) or 10,000 banks, you could see a doubling of that number, making it much easier for people to get into the system and get small loans they need to get the computer to start their company, then grow.

So I think there are positive signs here. But some of this comes back to the transparency, accountability, that you started off in the question with. If it's more open, then you see some of this competitiveness be able to rise up, and the flows of money that allow economic activity to grow, to increase.

ORDORICA: Okay. Before we open -- we are open for questions, I would ask you a final question: if you think this transparency is an issue that you, as a Mexican living in the U.S. and working for a -- for a foreign investment company -- is transparency -- is this an issue that you get asked questions about concerning Mexico?

MARISCAL: Definitely. You know, there's -- there are two layers. So there is, I shall say, the big, world-class Mexican companies we all know about and -- you know, media, Televisa, Walmex, SAMEX -- world-class, a lot of transparency. And then, there is a layer of a lot of small -- small-in-size companies that are run more like family -- in the family, like, where the books are, you know, a little difficult to understand; where, as Shannon said, there's very little credit at all, and so there are ways in which they fund themselves.

But the (process ?) to GDP in Mexico is only about 20 percent, compared to 40 percent in Brazil. Funding credit -- bank credit to companies in Mexico is about 7 percent, against about 18 percent in Brazil. So there is -- the reason I link this to transparency, like Shannon, is because if you don't have the means to finance an accountant, because you're very constrained, and the rate of interest you have to pay, and have to figure out a way to grow up from cash flow, it's very difficult to move up and to have -- to get the standards and the structure and the setup to be -- to have world standards. So I do think it plays a big role -- certainly, when it (wicks ?) down to the layers.

Now, you could argue that's where the opportunities are, you know, because if you can decipher those books, you probably can make a lot of money. But it is indeed something that -- very few companies in Mexico really can deliver that. You know, there is only about 170 companies listed in Mexico stock exchange -- (inaudible) -- like, over 500 in Brazil. And of those 170, only about maybe 70 are liquid enough and transparent enough and -- that you could consider world-class. So transparency -- big issue. It's getting better, but I get asked a lot of questions about transparency when we put money to work in Mexico.

ORDORICA: Well, now we're open to questions from the audience.

QUESTIONER: This is a fairly specific question, although there's a back question behind it. A couple years ago, we thought a lot in Mexico about a double strategy that would see many businesses move from China to Mexico. As wage rates rose in China, transportation costs increased, it seemed ideal that Mexico would benefit. This was tied into a very large transportation infrastructure strategy. Both of these were connected with new ports and so on.

So the first question is what happened with this. And second, the back question is, is Mexico thinking about strategies for the 21st century? Is it -- unlike the United States, where we seem not to be -- or Canada, for that matter -- is there thinking on what Mexico would look like in North America, for example, for the 21st century? So first question: Is that happening? And what's the bigger meaning?

PARDINAS: Yeah.

ORDORICA: Juan, you want to take that?

PARDINAS: Yeah. I think we are thinking what Mexico should do in the 21st century, but the problem in my area of work is that we are sick of diagnostics. We have so clear the picture that it's so boring. The problem is that changes do not happen -- not because lack of ideas or lack of vision, but the problem is that there's huge sectors of the country and the economy that knows that -- Ana Paula was mentioning on the -- on the Friedman article -- that benefit from the status quo.

So there's no -- not only reform in PEMEX, because we confuse PEMEX with the souls -- the soul of the nation, but, because there's a very powerful union which can only function the way it has functioned the last 50 years, if there are -- if there is no transparency, as a company listed in the stock market will expect. So there's a vision, but I think there's a very efficient kind of status-quo lobby to prevent Mexico for -- from changing.

And (Rick ?), I think the "transparencia" and the last question of Ana Paula -- just wanted to say that I think organized crime is not the biggest challenge for Mexico. It's federalism, to make it work as a federal democratic country. Why -- I say this regarding the issue of transparency. But it will work also for public security or basically any problem we have regarding authority in Mexico.

Just two weeks ago, the state of Nuevo Leon decided that its public debt was a state secret; it was confidential. I have never seen it anywhere else. It's quite appalling. This 20 years ago would haven't been possible, because the president would have flown the governor of Nuevo Leon -- would say, "Are you crazy? That cannot happen," the markets will say -- they will not like it, and the governor of Nuevo Leon will make the public debt transparent.

The things have changed so much that the -- this structure of control, this structure of accountability, this pyramid of -- chain of responsibility has been broken, due to the positive change of democracy, and you also, too, we have a federalist constitution, but we never pay attention to it. It was just in that word inside the book of the constitution. Now that it's taking strength, it's becoming very difficult to govern the country that just 20 years ago was centralized in the -- in the figure of the president.

So transparency or having -- pushing ideas forward -- now you have to convince the -- for example, the doing business in Mexico, which we have improved a lot. The federal government has made a lot of efforts to improve the doing-business environment. But then you have to convince the state governor, and then you have to convince the municipal president, which doesn't have reelection, and its term finish(es) every three years.

So you -- once you have (settled ?) a business environment and rules to make it easier to open a new business, the new municipal president changes and changes the rule that affect the whole change of command, up to the top. So, yeah, there is a vision, but I think there's no coordination to put forward that vision.

ORDORICA (?): (Inaudible.)

QUESTIONER: Yeah. Okay. Well, thanks. Just a very quick question. It's about NAFTA. I mean, some years ago, everybody was talking about NAFTA and the integration of North America, and they were very optimistic. President Fox even talked about NAFTA Plus. And now nobody talks about it. I mean, I don't know -- because the perspectives are not so good.

So what do you think is going to -- are we going to see some integration of North America at some point? What kind of integration?

What's the role of Canada? Nobody has mentioned Canada. It's still part of NAFTA? I don't know. (Laughter.)

Well, I mean, how do you see the future? I mean, are you thinking that this idea is really possible or maybe was just something that Salinas invented to -- I don't know, to make an economic word or something like that? I mean, how do you see that?

ORDORICA (?): (Inaudible.)

O'NEIL: Well, NAFTA, in the end -- and Salinas's -- what he wanted out of it I think he got out, which is that it was an investment treaty, in many ways. And it was limited to that.

I mean, the speeches that were given on both sides of the border of what NAFTA would do in the -- in the time of the NAFTA, you know, being passed were, you know, the critics said it was going to destroy everything and the -- and the proponents said it was going to make everything better; it was going to be a panacea for everything.

But in the end, it was an investment treaty, and it brought investment to Mexico and it brought investment and integrated supply chains from Canada to the United States to Mexico. But the issues that were left out of NAFTA, which are, as we've talked about, the oil industry and PEMEX -- as we've talked about today, immigration was left out, those markets were left out -- those, as we can see from our conversation today, we're still struggling with.

And I don't see those -- I'm not sure where the solutions for those are in and of themselves. But definitely I don't see any political will to try to link them back to a NAFTA-type structure, to try to bring them all together. If PEMEX is dealt with in Mexico and opened up in some form, it will be on its own terms. If immigration, some sort of reform either large or small happens, it will be done as an immigration reform.

But it won't be part of a -- they won't -- it's politically not helpful to tie it to these larger issues, because then you get in the "noes" that we have on both sides of the border. Not just in Mexico are there "noes," we have our own, you know, plethora of them up here. And so taking them apart is probably the best political strategy. But that's where NAFTA was left.

MARISCAL: I agree. I think NAFTA did what -- let me put it this way. It could have been a lot worse without it. I think that it generated a huge boom in FDI for quite a while, and it brought Mexico a level of competitiveness that I don't think otherwise it would have had. But it's incomplete.

It's -- I would also add, in addition to the integration of the labor markets, the financial markets were never really integrated fully. It is very difficult for an American bank to lend -- give a mortgage to a Mexican.

Now -- (inaudible) -- maybe would have a subprime problem with Mexico otherwise, but that financial integration did not happen either. So it's going to take leadership and it's going to take a healthier U.S. economy to potentially push NAFTA to a higher degree, which these issues of labor integration -- gradual labor integration through temporary workers programs or greater financial integration, rule of law across the three countries will happen. You need the political environment. We don't -- I don't see it in the next couple of years, certainly.

And Canada is linked to -- Canada is interesting, because it's a natural-resource country. It's now much more linked to the Asia cycle, much less to the U.S. cycle, interestingly enough. It has benefited from this commodity resource base.

ORDORICA: Are you saying there are "noes" on both sides of the border? But I think the "noes" in the U.S. start with a "T", right?

MR. : (Laughs.)

ORDORICA (?): A "T" in the --

O'NEIL (?): Tea party?

ORDORICA (?): The tea party? (Soft laughter.)

(Cross talk.)

MS. : Back there.

QUESTIONER: My question is related to NAFTA. Yes, it seems that Mexico tied itself to the maquiladoras and the United States has slowed down. That's impacted it. I got the impression that if Mexico perhaps focused more on energy sector and petroleum, it might be a bonanza there. But the Russians have done that, their overdependency on oil exports. Depends, of course -- if the oil price goes down, then they've seen recessions. And the Venezuelans are also impacted by the oil price.

But my question is specifically addressing the -- one of the historical aspects of Mexico, which is the campesino, the ejidos, and we == of course it's -- they've always played an important part in Mexican history.

What is Mexico or the Mexican government doing to support the agricultural sector and agricultural exports within the NATO -- excuse me -- NAFTA framework? Excuse me.

O'NEIL: That's probably one of the biggest failings, and where you see the critics of NAFTA come out is on the agricultural side. And so NAFTA has had its winners and its losers overall. I think almost all mainstream economists agree that there have been more winners than losers. But the losers have been on the agricultural side, and there are some 3 million people that, you know, are pushed off of their farms, are no longer involved in that. And the government in Mexico did not take the steps to help ease that transition.

I mean that, in fact, you know, the government did of course create big programs that were supposed to help those people, but that money -- back to our transparency issue -- doesn't seem to have gone to the poor, you know, corn farmer or other farmer that it was supposed to help and that sort of transitioned to a different type of job or a different type of life, and instead went to relatives of large politicians and, it seems in some cases, to narcos themselves and their relatives.

So there has been a disconnect there, particularly on the agriculture side; that's where the weak point is. I mean, given that the -- what's interesting is, you look at some of the polling data -- and you know, if you listen just to political leaders, you would think, on both sides of the border, if you read some of the headlines, that everybody hates NAFTA, right? When you look back at the Democratic primaries back before our last presidential elections, you know, Democrats were tripping over themselves to talk about how bad NAFTA was for U.S. workers. And on the Mexican side, you see the same. You see politicians come out and say how much they dislike NAFTA.

But if you look at polls of Mexicans, about how they feel about globalization and free trade, they're overwhelmingly in support of free trade and globalization. They see it as benefitting them. It benefits them perhaps on the producer side and as labor, but it benefits them particularly as consumers. And they recognize that.

The things that they like less, when you look at these polls -- NAFTA they like, openness and globalization they like. Some of the privatizations, they're less fond of, because it's raised the prices of their phone calls, of their -- you know, well, they haven't privatized electricity yet -- (laughter) -- but of some of the other basic services there. And so those are the things that they're less comfortable with. But overall the opening, in things like NAFTA, there's actually a lot of support, at least on the other side of the border.

MARISCAL: This is the only one I'm going to come out in support of Carlos Slim. Telephone rates have plummeted in Mexico since telephones were privatized. It's not just --

O'NEIL: You can get telephones, too, now; (you can get telephones ?).

MARISCAL: You can get telephones in one day. It used to be six months.

QUESTIONER: (Six years ?).

O'NEIL: (Laughs.)

MARISCAL: That was a little before. But that's a global phenomenon of technology -- but yeah.

PARDINAS: One thing of defending NAFTA, it's more or less like President Obama defending his rescue plan, because the message is, well, the things would be much more worse without it, but it was not as good as we originally expected. And it's more or less the same feeling.

The problem with NAFTA, it's not the tradable goods. There has been a revolution in Mexico. If you see the amount of homes that now own a refrigerator, the amount of people that own a car, that has been changed by NAFTA. The problem is the non-tradable sectors, especially banking, telecommunications, some sector of telecommunications. There there's much more to -- there's so much potential and so much to do, but nothing is happening. That could be a bit frustrating.

MARISCAL: I'll just add one quick thing, then. The banking sector in Mexico also made kind of the wrong bet. Most of the banks are now owned by Spanish banks in Mexico. And the one large one is Citibank. (Laughter.)

ORDORICA: Over there.

QUESTIONER: I'm Bob Lifton, Braden Technologies. One of the things in today's competitive world that countries find they need to be is entrepreneurial and innovative and educated, in that direction.

To what extent is Mexico moving forward in those areas? How many patents have Mexicans filed, for example? What kind of small companies are being created that are going public in Mexico? What kind of education for entrepreneurial activities are they getting?

It's wonderful that your sister started a business, but the very fact that you can talk about that as something unusual is frightening from the point of view of the country's future.

PARDINAS: Not as frightening as your question, actually. (Laughter.) Samsung, the Korean company, produced more patents in a year than Mexico as a country as a whole. We are losing a huge edge on that -- on that race.

A big part of the problem is related with the education system, the public education system, the teachers' union. I would not exaggerate if the -- I would say that the biggest power broker in Mexico is the lady that heads the teacher union. Actually, she was a key factor to make President Calderon president of Mexico, but she also -- it's a huge obstacle in reforming the education system in order to create and offer the Mexican children the basic tools to compete in an economy that you need to create patents, you need to have a basic knowledge of math just to get educated to work in a factory, in a car plant. And I think that's maybe the weakest point of whole Mexico competitiveness, but that's why your question is so painful in a way.

ORDORICA: Jorge.

MARISCAL: If I may just add, I -- you know, this is one unfortunate cost of the war on crime, I think has consumed a tremendous amount of political capital on the administration. And that has -- fights like that have been much more difficult to fight, the fight on energy and PEMEX -- when you're constantly, you know, fighting this war, and having so much of the press on top of you. And so it's unfortunate. So it's another real cost that probably adds to the 1 percent of GDP that we needed to talk about before. But it is a real -- it is a real cost.

QUESTIONER: Ray Suarez from PBS. I asked the head of Volkswagen if Mexican workers could make a Volkswagen with as few manufacturing defects as they do in Wolfsburg, would they ever be able to live as well. And I said, "Well, when?" And he said, "Never." And while I appreciated his honesty, "never" is a pretty discouraging answer for fans of globalization.

When Zenith left the western suburbs of Chicago and headed down to the border states of Mexico, the men who were left behind when Zenith left bought houses and sent their children to college on what they made from Zenith, while the women who now work for Zenith on the other side of the border made $8 a day and built their own homes out of packing materials.

I'm wondering how, in a world awash in overcapacity, where capital gets more and more mobile all the time, how a low-wage country can compete itself into the global middle class when, if you make any wage demands that reflect your productivity, companies can just easily find someplace cheaper and pick up and leave.

ORDORICA: Jorge, I think that would be a good question for you.

MARISCAL: Thanks. The easy one, huh? (Laughter.) I think you're looking at one side of the equation, which is the cost. What I don't think you're factoring in is the benefit that the American consumer, who -- you know, whenever he finds another job -- or the ones that didn't get unemployed is going to get from being able to buy cheaper goods that come from China.

The purchasing power that Wal-Mart has afforded the American population by virtue of having a large percent of goods made in China, because the factories move there, is a huge benefit that has to be taken into account. So I think you have to think about the two things.

In terms of -- in terms of the -- it is a starting point. (I hope ?) -- capital moves obviously to where the returns are bigger. And wages is one factor, but it's not the only one. It's education. It's infrastructure. It's transportation. And it's not clear that, you know, China with much lower wages than Mexico is competitive in some areas. So it's a much more complex situation, in my mind. But I think poor countries that are able to attract capital and generate employment and obtain a transfer of technology and a way of doing things will benefit in the long term, even if at the beginning the wages are much lower than what they are in the U.S. or Japan or Europe.

O'NEIL: Let me just add to that. And it's basically reiterating what you've said, but no country that starts at low wages wants to stay there. I mean, it's sort of -- globalization, it's like the immigrant story, right? Your parents come here, and they work hard at these jobs, and then they send their kids to college, and then their kids go on and become, you know, professors or take much more value-added jobs.

And countries are the same way. You start off as the low-wage producer. But you see, even with China and its ambitions in the world, it doesn't want to remain the world's low-wage producer forever. It wants to move up the value chain. It wants to have its own R&D, and it wants to move up and to create these things. And that is the challenge for Mexico, is how do you move from that low-wage producer and keep going up the ladder.

MR. : (Inaudible.)

QUESTIONER: Yeah, picking -- sorry. Picking up on the question and the comments and the integration of labor and the upward mobility over time, one of the pieces of course historically of the upward mobility over time has been organized labor in every industrial democracy. And I'm wondering about the place of organized labor in this conversation, both generally and like -- in a conference like this. And I'm thinking integrated labor, guest worker, for example, someone like Baldemar Velasquez organizing the guest workers, and the -- where that piece fits in.

PARDINAS: We need labor reform in Mexico to transform unions in organizations that defend the rights of workers. Now, unions in Mexico do a lot of things, but defending the rights of workers is not their biggest priority. They are good for political mobilization. They are good for -- for example, just a couple of weeks ago, the Comision Federal de Electricidad, now our single electricity monopoly producer in the whole country, said that the union takes 3 percent of every contract made with a company, with -- it's like a bribe, like a flat rate. Three percent of every contract made by the Comision Federal de Electricidad, this 3 percent goes to the union.

So we need a labor reform to focus unions in what they should do, which is defending labor rights. But now being a member of a union in Mexico has really bad press because all these associations that we have with corruption, with lack of productivity. And, sadly, the unions do not do their basic job, which is guarantee that -- the right of workers, no?

MARISCAL: He's been raising his hand here in the second row for a while.

QUESTIONER: Hi, Dan Wilson. Looking at the bilateral economic relationship and maybe leaving aside the big ticket on page items, what economic reform initiatives would be done on either side of the border, or on both sides of the border that would be most contributing to the prosperity of both countries?

MARISCAL: That's a good one. I think energy is up there in Mexico, if they were able to allow for greater competition. And private-sector investments in the energy sector, it would free a tremendous amount of resources that could be devoted to other things. So I would put that number one.

And I think -- you know, it's much more indirect in its benefits. But the completion of the political reform in Mexico, political -- the judicial reform, that it's so -- such a key part of the legal system.

On the U.S. side -- you know, there is -- clearly you can say it would -- you know, guest worker's program, amnesty, all these things that are politically very infeasible. But I think one that would in theory should be pretty easy is simply controlling guns a lot -- the sale of guns in the United States.

You know, drugs don't kill people. It's guns that kill people. And so if the guns -- I don't know the exact numbers, but north of 80 percent of the guns that get confiscated in Mexico are traced directly to the southern states of the United States because it's so easy to sell them. And a lot of it has to do with the ending of the ban on assault weapons and the high-powered weapons there.

You know, it just makes no sense that something that apparently is so simple to do with it would have such a dramatic impact on the human cost on the Mexican war on crime cannot be done in this country. I mean, it seems like it's a lot less of a tall order than immigration reform.

QUESTIONER: Going back to an earlier question, can Mexico compete with China? I mean, we've seen wages in China rising. The Mexican currency has depreciated significantly against the dollar over the last couple of years, so wages in Mexico in U.S. dollar terms are much cheaper. So, thinking specifically in terms of export competitiveness and manufacturing.

PARDINAS: Maybe the question is, we would like not to compete with China, but do business with China. How we can achieve that, well, going back to another question, raising the level of education and the quality of education of our workforce, that would be one.

Guaranteeing the property rights in Mexico in order that -- well, China offers very cheap labor, but Mexico has this other advantage.

And another factor that's really relevant there is the price of oil. If bringing goods from China, it's costly, then Mexico has an opportunity to make it more efficient and more competitive. But hopefully we would not like to compete with them, but become sort of a business partner. As Jorge was saying, that's what Brazil did and very successfully.

ORDORICA: I don't know. Jorge, do you want to answer that?

MARISCAL: Mexico has been able to compete with China recently. The market share of Mexican exports in the U.S. has been rising, while the Chinese market share has been declining. And I think Mexico has an opportunity. China is -- you know, the world wants China to focus more inwardly. They want it to become more of an importer than an exporter.

Now, China is very afraid of going that route. You know, they -- interestingly, they have done studies in China where they look at Mexico, they look at Brazil, and they know that when per capita income reaches somewhere around 7 (thousand dollars), $8,000, economies tend to stagnate. So this idea of fostering a middle class, in their mind, is a dangerous game. And the countries that have maintained very high rates of growth, interestingly enough -- Korea, Singapore, Hong Kong -- have been extremely open economies where the middle class took a long, long, long time to create.

So -- but I think it's -- I think China has no other way to go than to become more inwardly. And I think that will create an opportunity for the Mexican industry to be more competitive vis-a-vis the U.S. And, incidentally, I think the dollar, QE and everything we know about monetary policy in the U.S. suggests that the dollar should continue to weaken. This should -- for a currency that is very tied to the U.S. dollar like the Mexican peso should over time mean more competitiveness and greater market share gains with Europe and with Asia as well. So I think Mexico has a shot. It just has to pick its spots.

ORDORICA: We have one more question.

Okay, over here.

QUESTIONER: Andy Huszar. A question about -- there was mention of an expansion of NAFTA in the past. But I'm just wondering, to what extent does Mexico look south, and think about southern partner countries as partners for free trade and sort of leveraging the regional strength, rather than just looking north? Thank you.

PARDINAS: Well, there is a lot of room for improvement. Just to give an idea, Mexico has more trade with the state of Michigan than with the rest of the world. (Laughter.) So there's a lot of room for improvement. There are thousands of speeches and summits of Mexican president with Latin American -- the fact is that our economy, it's obsessively focused on the north. And there are obvious reasons for it.

One of the not-so-obvious reasons, I think, would be lack of credit. If you manage to improve credit and infrastructure in our ports in the Pacific and the Atlantic, we would manage to get more diversified partners in commerce in the world. Nothing against Michigan, but -- (laughter) -- the picture should be a bit larger than it. (Inaudible) -- credits for exports and infrastructure.

ORDORICA: I agree. Your concluding remarks, Shannon. Ladies first.

O'NEIL: My concluding remarks are, as we started off, it's been a tough time for the U.S. and particularly tough for Mexico. And we -- they haven't de-linked or, you know, the cold has spread. But there are these positive signs in Mexico.

And so, yes, Mexico, they know the diagnosis. They haven't yet taken the medicine in many cases. But there are aspects of the economy and things growing within it, be it the middle class, be it sort of nontraditional sources of credit, be it some grassroots entrepreneurial efforts from cultural changes, from generational changes that lead to some positive aspect there.

And the other aspect we haven't mentioned, let me just throw out there is Mexico right now is hitting what they call a "demographic bonus." It has few children, few old people, a lot of people in this economically active population. So for the next 20, 25 years, if they can harness that effort, their economy -- into their economy, you could see it take off. But it is a short window when it doesn't have the obligations to the older and to the younger generation. So it's -- now is the time for Mexico.

ORDORICA: Jorge.

MARISCAL: I would say, first of all, don't underestimate the United States. The United States has proven over time to be extremely flexible and adaptive. And rebound, I think, is a real possibility in the U.S. And a vibrant economy coming back here, I think, is a real possibility maybe not next year, maybe not the following. But, number one, I wouldn't underestimate the U.S., which means don't underestimate the impact for Mexico.

Second, I don't think you should underestimate Mexico. Right now everybody's enamored with Asia and China, but a rate of growth of 10 percent for a long time cannot be sustained. And China is bound to see its curve of growth decline. And I think countries that will foster more a diversified, settled domestic drivers of growth will look a lot better.

Brazil has a lot of problems that people don't think about now. It has a much more bloated fiscal problem, a much larger government, a huge social security problem down the road. And people are -- don't see that right now because of this cycle in which Brazil has stayed. And I think that in that there is, I think, a little bit of idealization of the breaks in Brazil, and a little bit of underestimation of Mexico.

ORDORICA: Juan.

PARDINAS: I'm an optimist. This is not the best time to be an optimist in Mexico, so I look for my optimism in the history of the United States. I think of myself having a conversation with an African-American in 1950, and telling him, like, before the civil rights movement and everything that in 60 years your country will have an African-American president, and he will tell me, "Well, you're nuts. There so many history, it wouldn't be possible."

So I would like to think that in 50 years, someone could me tell me the -- how impossible it was to think of Mexico as a stable, safe and prosperous society. And I think it's possible. We have the potential. We have the will. There's a huge route and desire to change things in society, not as much in political leadership. So there are some good reasons to be optimists in the long term for the Mexican future.

PARDINAS: Hopefully, that happens before 50 or 60 years -- (inaudible) --

ORDORICA: In our lifetime.

PARDINAS: Exactly. Thank you very much to our guests and members. Thank you. (Applause.)

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THIS IS A RUSH TRANSCRIPT.

RAY SUAREZ: Welcome to what promises to be a series of challenging, informative and provocative conversations on "200 Years of U.S.-Mexico Relations: Challenges for the 21st Century."

I'm Ray Suarez. I'm senior correspondent for the "NewsHour" on PBS -- which I trust you see from time to time. If you don't, you owe it to yourself. (Laughs, laughter.)

We begin with a conversation on "U.S.-Mexico Relations Today." And on behalf of the council, I'd like to thank the consul general of Mexico in New York, the Mexican Cultural Institute of New York, as well as the council's Civil Society, Markets and Democracy Initiative, for their support of this symposium.

I'd like to note that the event is being held on the occasion of the bicentennial of Mexican independence and, in the same year, the centennial of the Mexican Revolution.

Please -- I'll ask nicely -- do not set your various communications devices to "quiet" mode or "vibrate" or any -- they really have to be really off, or else one of the ugliest noises known to man comes over the wireless microphone system. And we won't know who you are, but you will. So please, turn off your BlackBerrys, your pagers, your telephones, your -- whatever you got.

I'd like to remind all involved that this session is on the record. And let me begin by pointing out that this is, I'm sure, by common consent, one of the most important bilateral relationships on planet Earth for both countries. When you share a 1,400-mile land border, millions of citizens, tremendously promising, and significant today, trade relations, you're bound to have to talk to each other seriously, both as peers and, one hopes, as friends. How far from God Mexico is, is really up to Mexicans, but they have no choice at this point about being close to the United States; which is going to be the state of play, one assumes, in perpetuity.

So let me welcome our guests: Mexico's ambassador to the United States, Arturo Sarukhan; and our own ambassador, the U.S. ambassador to Mexico, Carlos Pascual.

And gentlemen, there's so much to talk about, in the security realm, in the trade realm, immigration, cultural exchanges, it's -- you know, we could sit here and talk all day; we won't. But let me get your --

MR. : (Inaudible.)

SUAREZ: (Laughs.) Let me get your view, if I needed a thumbnail description from a diplomat, of today's state of play, November 2010, this relationship between our countries. Ambassador?

AMBASSADOR ARTURO SARUKHAN: Well, I think I'd probably, given that you started with the old -- whether it was -- whether it's attributed to Porfirio Diaz, also of (General Ortega ?) -- these are historians that challenged who was responsible for that saying of "Poor Mexico, so close to the United States, so far away from God." I'd remind the audience that a good Israeli -- a good friend of mine, an Israeli ambassador in Mexico, when he had just arrived as ambassador, picked up the phone -- and as both Carlos and I do when we arrive in a new place; we seek to touch base with individuals in the government. And the Israeli ambassador called me and said: Can we have a chat? And I said: Delighted.

We started talking about Mexico's policy towards the Middle East, but we very quickly segued into the U.S.-Mexico bilateral relationship.

And he said: Look. Ever since I arrived here, I'm always surprised by -- when I hear this, of poor Mexico so close to the United States and so far away from God, because actually it should be the other way around. For Israel, it should be poor Israel, so close to God and so far away from the United States. (Laughter.)

And I start with this because I think that the thumbnail description of this relationship is a huge opportunity to fulfill the strategic parameters that this relationship provides to both countries. And the border is certainly a 3,000-kilometer region which does provide for huge challenges, some of them -- some of them that we are facing together as we speak, but it certainly also opens up huge opportunities for both countries to change fundamentally the nature of the game between both countries. I don't think that we have seen the commitment on both sides of the Rio Grande, both in Washington, D.C., and Mexico City, that we have seen today in terms of ensuring that this relationship regains a strategic footing since the days of NAFTA.

SUAREZ: Ambassador, and if you could, perhaps reflect on the same question in light of last Tuesday's elections.

AMBASSADOR CARLOS PASCUAL: I think, regardless of what the electoral outcome might have been, but including taking into account the change of position in the House, one of the things that I think the United States has to recognize is how important Mexico is to us.

I think sometimes there's a perception in the United States that the United States is doing for Mexico, that we're helping them with their security, that we're helping them get their problems under control.

We forget that Mexico is our number-two trading partner in the world. We forget that we export to Mexico more than we do to China, more than to the newly industrialized countries of Asia combined, second only to Canada.

As I've worked over the past year and a bit in Mexico and have met with every single major company, whether it's Ford or GM or Chrysler or Caterpillar or General Electric or Intel or Cisco, what I have been phenomenally impressed with is the extent to which the integration that they have had on design and production -- not just production, but also design -- has lowered their cost structures and increased their competitiveness and has increased their capacity to export and to produce for the U.S. market products that would not have been competitive globally otherwise.

And so part of the reality of Mexico today is that we are working together in this global market, and in that global marketplace, we are helping one another. And one of the things, I think, for a new Congress to develop an appreciation for -- because too many of the stereotypes are either the issues related to security or the issues related to immigration, with a perspective that Mexico can be a problem -- I think one of the first lessons is that Mexico is a partner, and that partnership has actually made both of us better off, and we need to appreciate that and strengthen that aspect of the relationship.

There are obviously security issues that are pressing to both countries. And in those security issues, I think we have to keep a very clear perspective that there are zones of extreme violence. And Ciudad Juarez, for example, with a homicide rate of 191 per 100,000 per year, is the most violent place in the Western Hemisphere. But as a country, Mexico has a homicide rate of 14 per 100,000, which is less than Brazil's of 25 per 100,000, which I think would probably surprise most of you in the audience.

And on immigration issues, these are difficult questions for both sides. And we need to find a way to be able to work through them, talk about them and develop an understanding of the human perspective behind immigration, because otherwise it can become an issue which very quickly becomes very volatile and very political without understanding the benefits that both countries can have to having some form of a normalized immigration system.

Those are, I think, the key issues I would put on the table to start.

SUAREZ: Ambassador Sarukhan, you see American media. You follow it. You see what Americans -- rank-and-file Americans are given from which to create an impression of the state of life in Mexico. Is that a portrait from which you can build a reasonable understanding of day-to-day life in your country? Is there too much concentration on the Juarezes and not enough on the places in the country that have been either less touched or hardly touched at all by what's going on?

SARUKHAN: Well, I addressed this issue just a few days ago in Washington, D.C. And I want to be very clear about this. As someone from my generation in Mexico that saw a very different Mexico from the one that we live in today where the challenges that the press faced were not from organized crime but from a government that was trying to shut them down and to, for example, control what they printed, in terms of their access to print, to be able to produce the papers, to the situation that we have today where we have an empathic free press. There's a huge seismic shift.

But one of the challenges that I think that we face, especially when it comes to international media, is that unfortunately you do see the dynamic of "it it bleeds, it leads." There is a narrative which is dominated by those Ciudad Juarezes of Mexico. And where sometimes it is a big challenge to provide either a contextualized understanding of Mexico or a broader vision of what else is going on in the country and a nuanced understanding that despite the challenges -- and I'm not going to sugarcoat the issue of violence and I'm not going to put it under the carpet -- there is a huge challenge that Mexico faces today in terms of violence being unleashed by drugs and -- (inaudible) -- organized crime in general.

But to infer from that that there is a brush fire from the Rio Grande to the Guatemalan border and it affects everyone indiscriminately is off the -- is off the mark. And I think that we have seen some important efforts by some media outlets in the United States to provide a broader picture, but this continues to be a challenge.

SUAREZ: Well, these things that we hear about on this side of the border seem to be one-upping each other week by week in their lurid, crazy violence, their Gothic nature -- the mass killings, the sort of bizarrely creative ways to make people suffer. That has to have some impression on this side of the border. Is it making -- how is it making your job, explaining Mexico to Americans, different?

SARUKHAN: Well, it's certainly not easy, again, because some of these images and some of these stories, for obvious reasons, because they're heinous enough and they're tragic enough to be a story in and of itself, do dominate perceptions of Americans of all walks of life as they look towards Mexico. But I think the challenge as an ambassador, as our consular network through the United States, in our interactions with everyone from civil society to the private sector to media, is to provide a nuanced, balanced understanding of what is going on in Mexico.

And there are some stories which are critically important for Mexico's future development. For example, I think you and I have talked about this in your show. There's a fundamentally important success story taking place in Mexico today which may not be as sexy as some of the stories that you see in the media but which is fundamentally transforming the face of Mexico, which is the expansion of the middle classes.

And this expansion that is happening in the middle classes in Mexico is a direct result, A, of Mexico's mooring into the international economy via NAFTA, the success story of NAFTA, which we have to continue to underscore; and, B, a sustained macroeconomic -- responsible macroeconomic policies over the last decade, at least since the 1994 economic crisis -- which was the last one of our making; this one was yours -- but certainly 1994, which was the last time that Mexico mishandled -- badly mishandled its finances. Since then, sustained macroeconomic policies, the fact that Mexico moored itself to the international economy, that exports grew this expansion of the middle classes, is profoundly changing the face of Mexico.

And it is -- you could probably say, well, and why is this relevant in the fight against drugs? Well, because, if we are going to be able to defang and detour and push back transnational organized crime, civil society is going to have to play a key role in a co-stakeholdership model with the government. If we can't convince civil society in Mexico that this fight isn't just against drugs and drug traffickers, but it's seeking to enhance and ensure the rule of the law and the empire of liberty, and that is the most important challenge for Mexico's democratic future, we won't be able to take on organized crime.

So this is why this facet that plays critically into the hands of how we understand the next steps and the next phases in Mexico's struggle to ensure the rule of law, this is why the story's so important. You've barely seen stories on these types of issues in the press.

SUAREZ: Was the sigh of relief louder in his embassy or your embassy when California voted not to legalize marijuana? (Laughter.)

PASCUAL: (Chuckles.) Who knows? (Laughter.) It -- I --

SUAREZ: But it would have complicated matters, wouldn't it?

PASCUAL: Sure. It obviously would have complicated matters. And it probably would have complicated -- in terms of my day-to-day life, maybe it might have complicated it more, because I would have been on the front lines of trying to explain it in the Mexican public and to Mexican officials, and the headlines the following day would have been, "America acknowledges co-responsibility, legalizes marijuana." It would not have been a simple public-relations issue to work through.

But I want to go back to the security issue for a minute, if we could, because I think that one of the issues is that we're constantly trying to understand what the nature of security problems are and how they've evolved. And I think it's important to understand them in order to come up with solutions that make sense. And one of the things that -- I think a slight trek back in history is useful for a second. In the 18 -- 1980s and the 1990s, the Colombian cartels dominated the drug trade in the Western Hemisphere. In the 1990s, the U.S. cut off the maritime lanes and essentially pushed the drug trade on land. And what you eventually got in Mexico by the end of the 1990s were essentially about four major cartels that controlled the movement of drugs on land.

In '97, stepping aside for a second, Colombia legalizes extradition to the United States and starts to utilize it. A couple of years later it begins Plan Colombia. Uribe is elected in 2002; much more intensive implementation of Plan Colombia, much more aggressive use of extraditions. And suddenly Colombian kingpins who used to be able to even run their organizations from prisons are finding themselves in jail in the United States and starting to cooperate.

What happens? The Mexican cartels move to Colombia and become the kingpins of the trade in the Western Hemisphere. And this part, we're still working on documenting what the amounts are, but the value of this market for the Mexican cartels goes from here to here. Well, I mean, those of you from this town, what happens when that -- when that occurs in a -- in a market in a legal economy? You get new entrants, you get mergers and acquisitions, and you get hostile takeovers.

What begins to happen in Mexico in 2002, 2003 is a radical increase in the levels of violence that begin as you get breakups and splits among the cartels. The challenges between the Tijuana cartel and the Sinaloa cartel; the challenges between Sinaloa and the Gulf cartel when Osiel Cardenas, the head of it, is arrested in 2003; the split of Arturo Beltran Leyva from the Sinaloa cartel and how that influences violence in Ciudad Juarez. And one can go through and name these splits over the period of time and essentially track what the escalation or the movement of violence has been.

If one goes through that story, the -- there are a couple of lessons to be taken out of that. The violence that Mexico is facing today is largely explained by the nature of the changes that happened in the drug market in the Western Hemisphere. And I think President Calderon at times is wrongly blamed for initiating a cycle of violence that took place as a result of standing up to these cartels. I would propose that if President Calderon had not stood up to the cartels, that this violence would have, in fact, largely occurred anyway, and that historically he will eventually get credit for taking the decision of eventually standing up to the cartels.

I think the second thing that comes out of this is for those who have argued, you know, can't we go back to the way it was, you know, before? It's like saying can't we go back to the 1990s market, right? It's a different world; it's a -- it's a different set of factors. And you can't go to that. And the idea that there can be some accommodation in the context of what were, in the past, transit cartels in Mexico is just unrealistic. It can't happen.

But then I think what it reinforces is, you know, what lessons do you take from that for the future? Well, one is what Arturo just said, is the importance of reinforcing the rule of law, because part of the reason that these cartels continued to be violent with one another is that Mexico did not have the inheritance of a civil justice system, because it essentially had one political party that dominated issues from the top to the bottom, and issues were decided by politics. And so the civil justice system at a state and municipal level didn't exist. And so creating that capacity now, with the federal police, the hugely important debate that's going on, on how to strengthen state and municipal police, how to work with the judiciary, is key.

And then there's the even tougher issue of what do you in the short term, because all of those other things take time to build up. And this then becomes a very critical part of the relationship between the two countries and what we do together, for example, on working on intelligence sharing, so that you can move from a strategy of patrolling the streets to in fact identifying where you have safe houses and bases and weapons stashes and vehicles, so you can destroy capacity; or the importance of better understanding the movement of money and how it gets invested, so that you can then block off more of the funds that are being laundered; or, in the United States, better mechanisms to build cases on arms trafficking, so that we can prosecute them in the United States.

And so I think that when we look at these issues of violence and the escalation of violence, we've got to appreciate that part of this was occurring anyway. Some of it may have become more acute in the last two years as President Calderon and the government has taken actions and as our cooperation in the Merida Initiative have become sharper. And it's not surprising to see the cartels react, but the interesting thing is that what I think they are pushing for is -- they're the ones who are pushing for a return to the past. They're the ones who are pushing for a return to that period of impunity when there was no consequence to their -- to the violence.

And so I think it forces us to continue to challenge ourselves, is -- how do we work on these issues in a way that can have an impact and in the end take us from us from violence to creating a prospect of really having a more secure environment with the rule of law. But we kid ourselves if we think that it was the confrontation with violence that brought on the violence. This was something that is rooted in something deeper.

SUAREZ: The way Ambassador Pascual gives our chronology sounds very logical, very defensible, but there's a sizable portion of the Mexican public that's not so sure that militarizing the conflict was the right move on the part of the president, and he's suffered in his support for that policy as there's been an escalation in this confrontation.

Seeing the army on the streets of Mexican cities is hard for a lot of Mexicans, isn't it?

SARUKHAN: Ray, if you look at the polls today in Mexico, support for the president's decision to deploy the armed forces is pretty high, and it -- and it's -- and it has maintained more or less at the same level when -- than -- when the president decided to use the armed forces as a stopgap measure.

The question that I would ask those who question the use of the armed forces and their being a blunt weapon in the fight against organized crime is, what other option was there? There was no other institution in Mexico when the president decided to push back against organized crime that could have borne the brunt of the operational capabilities that were needed to start breaking down the command, control and intelligence capabilities in the drug syndicates.

Do I philosophically or ideologically like seeing military being used in law enforcement? Of course not. There's a reason why the United States has something called the Posse Comitatus Act, which prohibits the armed forces of the United States being used in law enforcement. But in terms what the president was facing, the only instrument that could have been used to effectively push back against organized crime was the armed forces.

The challenge is how quickly we can proceed, as we rebuild civilian institutions in the federal police forces and retrain agents, to substitute the armed forces with the new vetted jointly trained units that are being put on line. And that process, whoever thinks it's going to happen from one day to the next is smoking too much of what we're seizing in Mexico. (Laughter.) It's going to take time.

SUAREZ: Having said that, President Calderon has another two years in his term -- he's term-limited to a single six-year term -- and hands on this policy to a predecessor (sic) who may be of his party and of his point of view, or not. How much is -- how important is continuity in this regard when you're in the -- in the midst of such a big, sustained conflict?

SARUKHAN: The only way that this decision will see us through with the results we all want to see is sustained efforts on both sides of the border. It will not only be that the next Mexican administration continues to rebuild civilian institutions, to strengthen the judiciary, to bring in civil society, to provide watchdog capabilities to what is being done, how you build (straighter ?) social cohesion, but it will also force the United States and Mexico to remain committed, because if we can't fundamentally -- and look, I know -- you know, I know the lay -- the political lay of the land in this country, but if we can't fundamentally, within what's in the books today, modify the current flow of weapons and bulk cash which are coming from the United States into Mexico and which provide the drug syndicates with their firepower and their ability to corrupt, it will be a very taxing challenge.

And we need sustained U.S. commitment with a long-term strategy to change what will be a generational challenge for both countries. And the thing that has to be told very clearly, Ray, to citizens on both sides of the border is, we will succeed or we will fail together.

PASCUAL: And -- but let me pick up on -- it's sort of interesting on the flip side of this, on the Mexican side of the politics of this issue. And it's -- you know, ironically, it's easier for him to comment on the U.S. politics of it and probably me for -- to comment on the Mexican part of the politics.

But one of the phenomena that I think has occurred in Mexico over the last year and a half is that organized crime has touched the lives of more and more people, and in particular as the drug cartels have diversified their business into extortion and robbery and kidnapping and trafficking in persons, but particularly the kidnapping. And here, you know, it makes sense that they -- with kidnapping, you follow the money. Where's the money? It's in Monterrey, it's in Mexico City, it's in Guadalajara. And by definition, it touches a different class of people who are wealthier and have political access.

And what this has done is that it -- it's heightened the politics of the importance of confronting organized crime because it's touching a class of people that have political influence. If you look at the polls today, even though -- if you ask people whether President Calderon's efforts have been effective, the vast majority will tell you no. The -- if you ask them, should he -- should you continue to support or confront organized crime, depending on the poll, between 65 (percent) to 80 percent will say yes.

And I guarantee you, the National Action Party is not the only political party who reads polls. And so -- you know, part of my job is to talk to the political leaders of every single party, and I can tell you in the PRI that every single major political leader, whether it's the front-runner in 2012, Enrique Pena Nieto, or Beatriz Paredes or Manlio Fabio Beltrones or a whole series of others, they will now tell you that these issues of security are issues of the state, not issues of a political party. And even the PRD, while it doesn't have as much of a base, will actually have that general line.

And there will be differences in tactics, but I think that the days when there was a perception that if once -- that once President Calderon was gone, that there will be a throwback to a bygone era, I just don't see that happening in Mexican politics. I think the politics of this issue have so radically and fundamentally changed because of the way they have touched people that I just don't see it happening.

SUAREZ: Lest security and the war on drugs cover the entire session, I want to move on because there are other pressing issues, and --

PASCUAL: (Inaudible) -- on economics.

SUAREZ: Well, yes, absolutely, absolutely. One of -- one of the most interesting parts of our recently concluded midterm elections was seeing how, even though there was no bill on the floor, nothing being marked up or debated in our national legislature, candidates kept running ads about immigration, which usually featured big automobiles filled with big, scary Mexicans -- shot in the dark, fences, people clearing fences, or even in Louisiana, where you don't -- you don't border Mexico in Louisiana -- David Vitter's campaign had wild, xenophobic ads about some Mexican onslaught.

Immigration lay just below the surface. All you had to do was scratch a little bit and it was there. What does that tell you, Ambassador? Even though we aren't in the middle of a debate about how to proceed from now, there isn't a legislative proposal; and yet, there it was, marking out politics. Especially -- as you moved further west, it got worse and worse.

SARUKHAN: First, that it reflects what I have said all along, that there's no more important issue for the future of the bilateral relationship than getting immigration right. And it'll have to be done on both sides of the border: Mexico will have to do things that it hasn't been able to or has been willing to do in the past. And on this side of the border, at some point you're going to need some sensible immigration reform that solves a lot of the Gordian knots of why it doesn't work today.

Immigration -- if you look back at the last three or four electoral cycles, immigration typically -- since the issue reared its head in terms of public consciousness in the United States, which it hadn't probably until the Bush administration -- has become a recurrent leitmotif of the midterms; but usually, in the presidential cycle its profile and its importance diminishes. What we saw again in these midterms is what happened in 2006: The issue did not play itself out in the presidentials; it was there in the midterm. And it has happened just all over again.

I think -- I think, despite the fact that, as you can imagine, as the Mexican ambassador in the United States, and the son of migrants in Mexico -- I'm first-generation Mexico on both sides -- so being the son of migrants in my country, this is an issue that is -- that I care for deeply. So you can imagine some of my reactions to some of the things that were said or some of the things that were shown on TV. But what I think we have to understand is that in a slow economy, with the great, profound changes that are occurring in this society with most Americans feeling -- whether it's perception or whether it's real -- that their kids will not be better off tomorrow than they were today, the issue of immigration has fallen on the floor with a big thud.

It is very divisive. It is very polarizing. It has triggered a narrative, especially on both sides of the border, sort of a Dickensian narrative of "A Tale of Two Cities." For most Americans, the issue of unauthorized immigrants in the United States is all about the rule of law, that people break the law to come into the United States without papers. For most Mexicans, it's not about the rule of law; it's about, A, do Americans recognize the importance of these labor flows to the future prosperity of both countries and, B, are Mexican immigrants getting a fair share because of their contributions to the economic vitality and well-being of America?

As long as we have these two very disparate visions of what immigration is about on both sides of the border, it's going to be very hard to have a more rational discourse across the border on the issue of immigration. But obviously, this is one issue that we will need objectivity, we will need leadership on both ends of Pennsylvania Avenue. Because at the end of the day, labor mobility and the ability of Mexico and the United States to complement each other's economy -- yours, capital abundant; ours, labor abundant -- over the next 20, 25 years, especially when Mexico's demographics are changing profoundly and we are going to become much more like you are in 20, 25 years -- you've got a birth rate of 2.4, I think we've got 2.2, so we are becoming a much older society. So even if, 20, 25 years from now, some of the TV pundits go on their knees to the Virgin of Guadeloupe Shrine in Mexico City to ask for excess labor to come up to Napa Valley, it won't be there, because our demographics will have fundamentally shifted.

So the big challenge is how do we build a bridge between now and when these demographic changes kick in which will -- regardless of whether we want to hash out an immigration deal, won't allow us to, because the situation on the ground will have been dramatically changed.

SUAREZ: During this same time, during our run-up to the midterms, a million people, mostly Mexican, took themselves home. Successful crossings were down. Deportations were up. You would never know any of these things from the tone of the debate in the United States. What's going on?

PASCUAL: Politics. (Laughter.) Look, based on the FBI's statistics, the four safest cities in the United States last year with a population of over 500,000 were San Diego, Phoenix, El Paso and Austin. And last time I checked, they were on the border.

SARUKHAN: San Antonio. San Antonio is the fourth one.

PASCUAL: Was it San Antonio?

SARUKHAN: Yeah.

PASCUAL: I think Austin was actually close behind. So there you go.

The point here is that there's a reality that we've seen on the U.S. side of the border that we've taken policies that I think make sense and have worked, and those policies have been based on investing in more people, in more intensive inspection, working with Mexican counterparts in building capabilities as they develop the Mexican customs service.

We now have 26,000 CBP and ICE agents on the border. During the Bush administration, the average was between 15(,000) and 17,000. And they're inspecting in both directions now, which had not been the case in the past. We've invested more in law enforcement, and part of what was important with the $600 million supplemental for border security that recently passed was actually to allow for more law enforcement activity on the border.

And so one of the things this demonstrates to us, and it's ironically part of the reflection of the solution that we need to build toward in Mexico, is that law enforcement works. Having the capacity to have law enforcement officers to investigate, to have contact with populations, to be close to communities, is an effective strategy in keeping our communities much more secure.

And so I think part of what we have to try to do is educate people that we do have a strategy for law enforcement that can keep our population safe; that we have to strip away some of the myth about insecurity which somehow gets shrouded around or placed around the whole immigration debate.

And then we have to help people understand the benefits to both countries of a normalization of those labor flows. I think Arturo's exactly right that in an economy with the biggest economic recession we've had in a hundred years, with unemployment still at about 9.8 percent, there is inevitably fear, fear that someone else might take your job, or if you don't have a job, that someone else might get to a job before you do. And if we can't provide legal transparency to how our labor markets are going to work, that fear is going to be worse.

And it's clear that -- I would think -- that the reason why there has been as much -- have been as many undocumented immigrants coming into the United States is because there's a demand for that labor. You can have a supply-side push, but believe me, if nobody's hiring, I mean nobody's giving them jobs, this is not going to start -- not going to continue going for a long period of time.

And if we can provide greater clarity and the legal parameters for that labor, then that gives everyone the ability to be able to look at those markets and understand where those labor flows might go and what the conditions are, and, for those who are undocumented now, what the conditions are for them to have a path to legality, whether that's learning English or paying a fine or paying back taxes. If you put those things together, then I think we have the capacity to actually move forward and have a better substantive solution.

But the problem today is that there is not the grassroots and political understanding of this. And there just simply aren't the numbers in either the House or the Senate right now to pass legislation. And so -- and this has been interesting for me, and a huge political lesson. There have been those who have told the president, look, you know, just take this immigration issue off the table for a while. It's hot, there are too many other things out there. And he's basically said no, because it is too important; it's too important morally and it's too important economically.

And he has said that unless we work on building a grassroots understanding about the importance of regularizing immigration flows and creating a legal framework around it, we are not going to be able to achieve success. And the only way to make that change is to keep the issue on the table, to promote discussion and dialogue, to help it occur at the grassroots, and to create the political base over time that's going to allow this kind of legislation to pass.

SUAREZ: We've talked about it in the technical, nuts-and-bolts policy terms: immigrant flows, remittances, labor hunger on this side of the border. But do we have to also find another language for talking to the two publics about the role immigration plays in our societies, has played in our history?

Ambassador Sarukhan mentioned that he is of immigrant stock from two different countries. Ambassador Pascual is also an immigrant to the United States. So this is something that's shaped who you are as 21st-century men. You understand it, but do your publics?

Are they ready to have a different kind of discussion about immigration from the one that we've had, and really isn't working so great for the United States, frankly?

PASCUAL: Well, you know, I mean, one of the things that's ironic is that in the polls in the United States you'll get a response that says 70 percent support comprehensive immigration reform, and yet 50 (percent), 55 (percent), 60 percent support legislation similar to SB-1070 in Arizona. And those are two fundamentally contradictory responses. And it demonstrates, on the one hand, what I think Arturo and I are both saying, that there is a degree of fear there, and that fear factor is what's leading people in an environment of uncertainty to reach out and look for something, anything, that gives them a sense of certainty and protection about what immigration might be, even if it's what I would think is the wrong answer.

And yet at the same time, there is this instinct that there needs to be some comprehensive reform of the system. This has not been translated back into a consistent set of public policies that the population can support. And here, I think, in the United States, one of the things that's going to be important for us is to develop an understanding among politicans and to be able to go back to a bipartisan base that we were able to have for a period time in the middle of this decade, but the constituencies that one could put together before, even with the same actors right now, you can't put them together.

SUAREZ: Right.

PASCUAL: And so I want to believe that some of those individuals have not fundamentally changed in their character and nature. But I think we have to change the political calculation. And right now, the political calculus is that immigration is a bad thing, it's seen only in the context of the recession, and it is going to take a phenomenal job of public education and consistency to be able to change that.

SARUKHAN: I would concur. I'd just probably provide a footnote. Carlos mentioned that around 70 percent of the American public support comprehensive immigration reform. I would probably clarify that. They support the principles that underpin comprehensive immigration reform. But the phrase "comprehensive immigration reform" has become a bad word just like "amnesty."

If you flesh out what comprehensive immigration reform entails -- that is, how to secure future flows of workers that can come into United States in a transparent, legal, orderly fashion; that you bring people who've been living in the shadows out of the shadows, but it's not a free ride, it's not a free ticket; they pay a fine, they go to the end of the queue, they demonstrate that they can speak English, they don't have a criminal record. If you flesh it out, people then give you 70 percent.

But what I'm trying to get at here is the challenge that we face, and which you addressed, Ray, is that the narrative which has been built around getting immigration reform is what is not flying today in the face of the deep economic recession. And our challenge is, as public officials, as media, as policymakers, as think tanks, is how do we create a new narrative as to why this issue is critically important for the future wellbeing of both countries by avoiding precisely the landmines of amnesty or comprehensive immigration reform, which are what dynamited this in 2005, 2006, and for the last time in 2007.

SUAREZ: Part of your problem, the way I see it as a frequent visitor in Mexico, is that the economy can't deliver for a large number of young people. I was in a tiny, tiny town in the mountains of central Mexico doing a story about Oportunidades, the attempt to lift up the poorest of the poor and keep more kids in school for more years. Tremendously successful in the number of secondary educated new young Mexicans that there are.

But I was hanging out with a lot of guys, 16, 17, 19 years old, whose fathers had third-grade educations and second-grade educations, and the only jobs these young fellows could get with their secondary qualification was the same jobs their fathers had with almost no education. And those are the "let's take a chance and try to cross the border" crossers of tomorrow, those young fellows.

SARUKHAN: Undoubtedly. That's why I started my remarks on immigration reform that there were two sides to the same coin, that Mexico had to achieve or attempt to achieve things that had been untenable or they had been unwilling to do, previous governments in the past. Number one is to anchor those jobs in Mexico, create enough well-paid jobs so that 200,000, 300,000 women and men don't have to cross the border into the United States because they're seeking a better-paid job.

SUAREZ: And, Ambassador, if I may, when you say "well-paid," they don't have to be as well-paid as the jobs people would find in Denver or Phoenix. They just have to be well-paid enough that it looks like a better shot to stay with your own parents and friends and the town you know and --

SARUKHAN: So we have to anchor those jobs, because, quite bluntly, our loss is the gain of the U.S. economy. These people are bold, entrepreneurial and some of them talented. And by losing them, we are losing Mexico's ability to reinvest its human capital and to trigger that type of growth and anchor those jobs in Mexico.

The second fundamental equation of this is that Mexico needs to ensure, at the end of the day, that every Mexican that crosses the border into the United States does so legally and, B, through a designated port of entry.

And this has been for many generations, for many governments in Mexico, a very tough nut to swallow. Because the question obviously is, well, are you willing to do something to prevent people from actually crossing portions of the border where they shouldn't be crossing? And that is one of the challenges that Mexico will have to look into. How -- A, how do we destroy and eliminate the organized crime syndicates that are now, because of the squeeze that has put -- (being/been ?) put on their ability to generate revenue from drugs, are now muscling their way into human trafficking, for example? So how do we break down these operations?

And the Mexican and U.S. government have been working together in a very successful program called Oasis for the past several years, which is precisely targeting human-trafficking organizations working on both sides of the border; but also, B, how to ensure what the Mexican constitution also says, which is that every Mexican coming into or leaving the country has to do so through a designated port of entry.

PASCUAL: I have to interject on one thing, because this is, like, too good for a commercial announcement. Today at 5:30 there's a film that will be shown. It's called "Los que se quedan." The director of that film, Carlos Hagerman, is right here. If you care about this issue, you have to stay and watch this film. And it's a shortened version of it and it's less than an hour, but it is extraordinary because what it does is it focuses on the lives of Mexicans who are making this decision about whether to emigrate. And you understand the human tragedies that they go through, because every single decision to emigrate means to break up their families, and it puts the issue in a completely different light from what we're used to understanding in a U.S. political context.

And I think that's part of what we have to understand, that the issue for so many Mexicans is not just a question of seeking to take somebody's job; it's somehow how to give an opportunity to (ask ?) parts of their family. But what they want is not to go and stay, it's to go and return, or, in fact, frankly, to be able to stay to begin with.

The other part of this equation -- and that's at 5:30, right? Okay. So you have my commercial now. (Inaudible.)

But the other part of this issue is, you know, Mexico -- it's part of the contrast of multiple realities in Mexico. I mean, there are 47 million poor people in Mexico, based on Mexican government statistics. And that's the bad news.

The positive thing is that because it's also a G-20 country, it has the 12th, 13th largest economy in the world, a sophisticating (sic; sophisticated) banking sector. But it's a banking sector that doesn't penetrate. And some of these guys can tell you and will tell you a little bit more about this later. But it lends yourself -- lends itself to solutions or at least interventions that can make a difference.

In Mexico, 25 percent of the population has access to a bank account. In the U.S. and Europe, it would be somewhere between 90 and 99 percent. In Chile, it's 60 percent; in Brazil, it's 48 percent.

Cell phones. There are now projects -- commercial projects being developed to allow for the use of cell phones to people to be able to pay their bills. If you could use that, for example, in the Oportunidades program that we were mentioning before, where you transmit the payments vis-a-vis your cell phone notice and you take it to your local 7-Eleven, and the mechanism for that is that the individual now has a bank account which draws down the money, you've suddenly brought 15 million people into the banking sector that were never there before. Those kinds of things can be done in Mexico that don't have the same prospect in other countries that I think can give people a sense of hope that there are the mechanisms to help eradicate some of these problems.

SUAREZ: At this time I'd like to invite members and guests to join our conversation with their questions. Please wait for the microphone. There are runners in the aisles. Speak directly into it. Stand; state your name and affiliation. And please, in the spirit of brotherhood and international cooperation, please ask a question that's a question, that is an actual interrogation. If you're speaking English, your voice will even go up a little bit at the end to signal that there's a question mark there. (Laughter.) In Spanish, we have the benefit of having two question marks in the sentence, so the -- it can't be avoided. But don't make a speech; don't give us your best thoughts on Mexican policy. Just ask us a question. Okay?

Right here.

QUESTIONER: Hi. My name is Ana Paula Ordorica. I'm a journalist in Mexico City. And I wanted your comments on today's Washington Post story on joint operations security, or military cooperation that is going on.

SARUKHAN: A very, very short response. There are no joint operations. And the Washington Post article doesn't speak about joint operations. What there is, and what the Washington Post article talks about, is enhanced training, exchange of intelligence, and what is a normal process in an area where the relationship had gone further and this had lagged behind, which is the normalization of the military-to-military interaction between the Pentagon and the Mexican defense ministries.

As you know well, one of the results of 9/11 was that the United States re-created its regional command, its (sync ?) system, and created NORTHCOM for North America. And Mexico for decades had been sort of in limbo. It wasn't part of SOUTHCOM. It had a -- sort of a special relationship with DOD directly through the Pentagon. And after 9/11, Mexico was put with Canada in NORTHCOM. And for many years after 9/11, Mexico refused, for many reasons -- oh, visions of the relationship -- refused even to acknowledge the fact that their interaction was through NORTHCOM.

And one of the things that has changed dramatically in the past years is that there is a much more normal relationship between both Marina (ph) and Defensa (ph) in their relationship, formal, institutional, with NORTHCOM, to the point where today we have, like the Canadians have in NORTHCOM, Marina (ph) and Defensa (ph) liaisons in Colorado Springs working on day-to-day basis, and the institutional ties and relationships with the Pentagon.

The article is also addressing something that Carlos and I and our colleagues in the Mexican and U.S. government have been working on since we kicked off Merida, which is, how do we ensure that the intelligence, the information, that the processing of that intelligence information provides an end game, it provides a result, that that information, the collation of the analysis provides the results that we're looking for, which is arresting the bad guys? And so what you see in the article today is simply manifestation of a relationship which, as the rest of the bilateral relationship in terms of security, is moving into the 21st century.

SUAREZ: Ambassador?

PASCUAL: Arturo is absolutely right. And the only thing I would add is that if one compared the levels of cooperation -- and we have intensive cooperation across virtually every single part of our two governments -- and the area which is most intensive is actually among law-enforcement agencies. And if -- you know, the extent to which DEA, FBI, Department of Justice are constantly working with their counterparts -- and, I should add, CBP and ICE -- in Mexico far exceeds anything that happens on a military level.

I mean, just to put it in context, this is an extraordinary issue for some people because of the historical context that Arturo mentions. I think generally the challenge that everybody faces is at a point in time like this, when we understand what the long-term solutions need to be in terms of building capacity, establishing the rule of law and so forth: What is it that can be done to bring to bear the intelligence and the experience to make the most effective use of the forces and the capabilities that are -- that are there today? And that's the challenge that they all face and that they're working on on a constant basis, is how to share experience on how to bring greater capacity to have an impact. Because it can't -- we can't wait the 5 to 10 years that it's going to take to build up the institutions.

So what do you do in the short term? And that's why I think it's important that we bring all the capabilities, experience that we have, recognizing that the vast, vast bulk of this is actually going to come through U.S. law enforcement agencies and their cooperation with their counterparts.

SUAREZ: Yes, sir?

QUESTIONER: Thank you very much. Christopher Graves with Ogilvy Public Relations. It's clear that the trade relationship is that the drugs go to the U.S. consumers; the guns and the cash come south from the U.S. They aren't at gun stores that we know of in Mexico; the guns all come down from the U.S. side of the border.

But these are two issues in this political climate that would seem to be very, very tough for anybody to take on in the U.S. How do you get the U.S. to acknowledge complicity, and how do you get the populations and populace who understand the complexity of the problem, to see that the U.S. is in fact a culprit?

PASCUAL: Maybe let me start, since part of it comes here on what U.S. policy is and what we do about it. I think, first of all, the president of the United States, the secretary of State, Secretary Napolitano and others have been very clear, and the number of times that we've talked about co-responsibility, from the first visits to Mexico, have been very straightforward and constant.

The president has consistently emphasized that the kinds of issues that we're dealing here -- with here, in narcotics trade and organized crime, are transnational issues, and they have points of supply and demand and transit that cover the entire hemisphere; and therefore, they need transnational solutions and that we all have to participate in doing our part to advance those solutions.

And so we need to do this because it's part of our responsibility to in fact come up with solutions that are effective for the United States.

You didn't, in your list of issues, talk about drug demand, and that's one of those things that we need to put a strong -- a stronger emphasis on, and this administration has developed, I think, a more comprehensive and creative demand-reduction strategy than we've seen in the past, dealing with issues from prevention to treatment, to working with addicts, to working with prisoners, to providing job alternatives, to community grant programs, and we've increased the budget for that. Well, we've requested an increase of 13 percent. We're on a continuing resolution, and we don't have that increase yet, but that's one of the things that we need to come back to.

There's a huge amount more that we need to do. And if you look at what was done, for example, with tobacco and the efforts of our wider society to educate people on reduction -- reducing use of tobacco, it just underscores how much more we need to do.

On arms, part of the solution is stronger and more consistent inspections, but, you know, realistically, a 3,000-kilometer border, it's going to be hard to stop everything that's potentially moving across. And so you inspect to deter, but you inspect not expecting that you're going to catch everything.

And so one of the things that we've done with Mexico is introduce an electronic tracing system, which is the same electronic tracing system we have in United States. It's been translated into Spanish. It's been licensed to be used in Mexico. And by entering the serial numbers of guns that have been seized, it allows us to look at the last point of sale, and then analyze the patterns of sales from individual gun stores or who the purchasers are, and to build up cases.

So for example, in August, we had a very strong case and a conviction. Two individuals ran a network of 10 straw purchasers selling AK-47s to the Sinaloa Cartel. One ended up in jail 57 months, the other 48 months. That's part of the -- a critical part of the strategy is that you have to create a cost to the illegal export of arms.

On money-laundering issues, these are issues that we're both trying to intensify the work that we do. We've had a lot of good work at a macroeconomic level that allows us to compare the financial flows between both -- between both countries.

One of the things that is a consistent challenge is, how do you bring this down to individual accounts, companies, real estate transactions? And so a key element here is going to be to build up the tools that allow that to happen. For example, Mexico is now in the process for the first time of creating digitalized property registrars. They've -- they started the process in 19 states. They haven't begun in 13 other states. But in the past, it hasn't been able -- they haven't been able at a central level to analyze who owns what property and how to trace that through the country, which creates a huge loophole.

These are the kinds of things that I think we can do together. And it requires a recognition, yes, on the United States we have a responsibility and that we have to take action on our side of the border. But we need to work on both sides, and we need to keep a picture -- a view of the -- of the importance of sustaining the rule of law.

And I'll just close with this point, and to underscore how important it is. You can buy an AK-47 in the smallest village in Africa, anywhere. It's just a question of margin on the price. So in the end, one of the factors is, yes, we have to make it harder to sell those in the United States. But at the same time, we have to keep combining this with all of the other efforts that we've been saying about promoting the rule of law and being able to crack down on violence, because demand -- and unfortunately, demand, whether it's for drugs or whether it's for weapons, can be a very powerful force. And one has to work on both sides of the equation.

SUAREZ: Sir.

SARUKHAN: Can I very quickly respond to that?

SUAREZ: I'm sorry.

SARUKHAN: Thank you. I'm convinced that, despite how tough this issue is -- and you can imagine that I am not the flavor of the month for the NRA when we talk about the issue of guns going south -- I do think the NRA can become a very important co-stakeholder in Mexico and the United States governments' efforts to stamp down on flow of guns towards -- going into Mexico, for one very powerful reason. The Founding Fathers didn't draft the Second Amendment to allow international organized crime to, A, illicitly buy weapons in gun shops and gun shows; B, illicitly cross them over an international border; and C, sell them to individuals of a country where those calibers or types of weapons are prohibited.

So if we can work with the NRA and the U.S. government in getting the information out, making people and owners of FFLs -- federal firearms licensees -- understand the rules of the game as it relates to guns in Mexico and why these guns going over the border pose a significant threat to Mexico's security, I think this would be a win-win for the NRA. They ensure that they are not being criticized for being -- for allowing, either complicitly -- or overtly or covertly allowing guns to go into the hands of drug traffickers who then cross them over the border into Mexico.

So I would certainly call upon the NRA to step up to the challenge of working with us and with the U.S. government, in finding out -- in devising a new ethics code that we can work together with. We can educate owners of gun shops and the people who go to gun shows, and create awareness of how this impacts security on the other side of the border.

This isn't about -- I may or may not agree with what's in the Second Amendment, but that's beyond the point. As Mexican ambassador to the United States, what I need to make sure is that what's in the books is enforced, and that we can work with Americans from all walks of life in converting them to co-stakeholders of ensuring that those guns are not going into places and into the hands of people that they shouldn't be going into.

QUESTIONER: Hi. Jonathan Chanis, New Tide Asset Management.

Could either or both speakers please say something about the state of Mexico's oil industry, its prospects for reform, the prospects for cooperation with American companies, and stemming with a really serious production decline?

SUAREZ: Ambassador?

SARUKHAN: Mexico -- this is the first administration that has attempted to tackle the huge challenge of: How do we open up the energy sector in Mexico so that it can continue to provide for the economic well-being and the growth of Mexico over the next decades? The first bill that was presented by President Calderon and approved by Congress, by all parties in Congress, is certainly a first step in the right direction.

Is it enough to change the nature of the game and to allow PEMEX to capitalize and to be able to do the deep-sea water exploration and drilling that it needs to, to be able to continue to provide not only for our growth but also for one critically important issue that we face in North America -- Canada, Mexico and the United States -- given that on any given day it is Canada or Mexico that sells you the highest percentage of your oil on a given -- on a daily given basis. How do we -- how do we ensure energy security in North America?

SUAREZ: Currently, foreign investment in PEMEX is not allowed, right?

SARUKHAN: It is not allowed. So what I -- what I think is clear, much in the same way as Carlos was speaking about perceptions across the ideological and political partisan realm in Mexico as it relates to the fight against drugs, I think much in the same way, with a few exceptions, I think most political actors in Mexico today understand that the style of (couante ?), in terms of our energy policy, is untenable.

We have been able to stabilize Cantarell, which is our main oil field. There was the -- Cantarell had been experiencing a precipitous drop in its production. That is now being stabilized.

But what is very clear and must be understood is that it's not going to increase. It's going to stay level if we continue to inject the resources that we're injecting into PEMEX, but in 10, 12 years, Cantarell will be drying out. So the huge challenge is, how do we open up the energy sector in Mexico so that foreign or domestic private investment, in whatever form or regime that you can devise and push forward, can ensure that PEMEX continues to be a viable company that continues to provide growth for Mexico and continues to provide security for the North American region?

SUAREZ: Quick comment, Ambassador?

PASCUAL: Yeah. I mean, production in decline from 3-1/2 million barrels a day to 2.4 million barrels a day -- it's now up -- getting close to 2.6 (million). The current head of PEMEX, Juan Jose Suarez Coppel, is a very talented individual, Ph.D. from the University of Chicago. He has brought a more creative approach to how you could use the existing legal framework, to be able to work within it to attract the best technology and capital.

One of the reflections of that is that PEMEX is the largest customer of the U.S. Export-Import Bank in the world, with an exposure of about $7.8 billion. With the use of U.S. technology, in particular applying it to the re-injection of gas to fields that have previously been abandoned, they've been able to go back and reopen a number of fields, which has been part of the main reason for the -- reestablishing some of the production.

There's now a more aggressive exploration and production program. At the end of this year, PEMEX will issue tenders for what it calls incentive contracts. These are mechanisms that have been created if you can't have private investment in the Mexican oil and gas sector, how to bring in on a contract basis major international companies and not only pay them for their services but provide certain incentives that compensate the success or failure of the work, which might be a slight compensating factor that will bring it closer to the financial calculations that you would have if you had an opportunity for an equity investment -- unclear how those are going to work, but it's -- within the current legal framework, it's pretty much about as far as PEMEX is able to go.

SUAREZ: We have time for one more. Yes, ma'am. Stand up, so they can see you. We'll get you a mike.

QUESTIONER: Hi. I'm Alexandra Starr from the Center on Law and Security at NYU Law School. Ambassador Pascual, you spoke a little bit about a grassroots campaign to, I guess, cultivate support for immigration reform. Can you elaborate on that a little bit? (Inaudible) -- timetable for actually submitting legislation?

And you know, part of the problem, I guess, is the fact that when these debates flare up -- I'd be interested in getting your opinion of what happens in Mexico as they see the kind of emotions that are unleashed when the U.S. grapples with legislation of that kind.

PASCUAL: I -- yeah, I think I'd be in serious trouble if I actually tried to give you a timetable on legislation. And I think probably some people in the White House would think that they -- they're controlling the legislative agenda, and we'll see what the timetable is.

It -- the -- what was -- what has been fascinating to is to see that there are grassroots groups throughout the country -- some of them are Mexican-American-based, some of them are not -- who have an interest in trying to normalize the legal framework for immigration.

About three weeks ago, I spent some time in Los Angeles making -- meeting with a whole range of different Mexican-American organizations. And what they've all realized is that they feel affronted by what's happened and the inability to move forward aggressively with legislation, but they actually haven't united in some way of advancing those legislative efforts. There are some groups, like La Raza, which has played historically a much more centerpiece role in trying to organize the Mexican-American community.

I think the challenge right now is to try to build up a coalition that includes the traditional constituents -- in particular, the Mexican-American community -- other immigrant communities, so that it's not just a Mexican issue but that it is more broadly based with Hispanics but also other immigrant groups that are seriously represented in the United States, and then the business community.

The challenge, of course, in all of this is where the dialogue -- how the dialogue is going to be -- is structured and formulated with the labor unions, because there is where the greatest fear factors lie. And if one can reach a better understanding with the labor unions on how immigration reform and a transparent legal base can also be of benefit to U.S. labor, then you potentially have a formula that can work.

But the trick is going to be to bring constituents to -- constituencies together, because if you have different immigrant groups with their own perspective without uniting, if you have businesses on the other side of the equation pushing for only part of the agenda, then you end up with this clash, and then you end up with a Republican/Democratic split, where the Democrats are willing to look at the social-justice issues with the undocumented workers in the United States but don't want to talk about future flows, and you have Republicans who want to talk about future flows but want -- don't want to talk about undocumented workers. Right?

So the key right now at the grass roots is how to bring those together. And that, quite frankly, is still an evolving process. But that's why the president has said we've got to keep the issue on the agenda, because if we take it off the agenda, then the momentum for it is going to go away and you're not going to get the kind of push that's going to be necessary to bring together and get some consolidation of those constituencies.

SUAREZ: Ambassador, very quick response to Ms. Starr, and then quick final comments from both of you.

SARUKHAN: The question is how this would impact Mexico?

SUAREZ: How Mexican public opinion responds when we have the peaks and valleys here on the -- in the --

SARUKHAN: Well, obviously, one of the reasons why I think public perception across both sides of the border seems to be working in the other direction of where government and government interaction is moving -- it would actually seem to be going in the other direction -- is because of public perceptions triggered by the debate on immigration -- how Mexico reacts to things like S.B. 1070 or some of the TV spots that we saw in the campaign or some of the local or state initiatives that are being enacted. There is a -- there is a pervasive sense in Mexico of -- America has gone down the road of nativism. It certainly doesn't make Carlos' or my life any easier in working both sides of the border and ensuring that people understand that regardless of the noise in the system, the relationship is moving forward in a way in which it had not moved in the past 10 years.

SUAREZ: Quick final comments from you both.

Ambassador.

PASCUAL: Rule of law, absolutely critical to providing greater security to populations but also to strengthening business activity; transnational perspective, for business to look at how we work together in global markets; from a security perspective, to be able to work on issues in a way that takes a transnational perspective of mutual responsibility; and window of opportunity, where we have a moment of greater economic competitiveness within Mexico. And it's important to work together to have those economic factors shape the security future and not let insecurity shape the economic realities.

SUAREZ: Ambassador.

SARUKHAN: Just two very brief comments in ending -- or three, maybe, but I'll be very short.

Number one, despite what you've heard today, it would seem that security is the overwhelming issue in the bilateral relationship. It is true. Security is at the core of the bilateral relationship today.

But the bilateral relationship is much more than just security, and it is very diverse. And there are a host of issues that we haven't touched upon today, everything from border infrastructure to how we're working together on environmental issues on the border, which play a critical role in the bilateral relationship.

Second, that the bilateral relationship isn't only about the bilateral relationship. What do I mean by this? That increasingly, Mexico and the United States have been working together on other global and regional issues, the way that Mexico has been working with the United States and the U.N. Security Council, how we are chairing the Security Council in June, work with the United States to send an unequivocal message to Iran in terms of the need for their compliance of all their commitments regarding the pacific uses of nuclear power.

The way these two countries have been working together on issues, which traditionally Mexico and the United States would have not discussed or put in their bilateral agenda, is a huge change. I've always believed as a -- as a Mexican career diplomat, that for a country like mine that isn't a military powerhouse, there are two ways to go around the world: You sit at the table, or you're on the menu. And the only way that Mexico will be sitting at the table is if we can deepen the footprint of engagement with the United States on a number of global and regional issues.

And finally that -- and I don't want to use the term "special relationship" because I don't want our British friends to feel annoyed -- (laughter) -- but I'm piggybacking on their -- on their paradigm -- but there are truly two countries that have a unique relationship with the United States. And both countries have something in common: a concept that was coined in this house, in the Council of Foreign Relations, many years ago by Bayless Manning, who talked about "intermestic" issues, the convergence of domestic and foreign policy, and how this changes the nature of diplomatic relations. There are two countries on the face of the Earth that have the unique challenge of having our foreign policy issues be domestic policy in the United States and vice versa, and the challenges of taking on domestic constituencies to move the bilateral relationship forward. Those two countries are Israel and Mexico.

Thank you.

SUAREZ: Thank you very much for your attention. Thank you to our two ambassadors. And it's probably one of the few times that a Mexican, a Cuban and a Puerto Rican have shared the stage -- (laughter) -- at the Council on Foreign Relations rather than being the opening line of a joke. (Laughter.) So thank you -- thank you for -- (inaudible). (Applause.)

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President Barack Obama and Mexican President Pena Nieto held this press conference in Mexico City after their meeting on May 2, 2013. They discussed immigration, security, and economic initiatives, and established the U.S.-Mexico High Level Economic Dialogue.

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